After a two-day deliberation, the Reserve Bank of Australia (RBA) decided to maintain interest rates at 3.6 percent. This decision reflects the delicate balance between unexpectedly strong inflation and low unemployment figures.

The board members reached this decision unanimously.

In its monetary report, the RBA expressed vigilance in monitoring the economy’s response to three interest rate reductions over the past year.

“Recent data indicates that inflation risks are leaning upwards, yet additional time is needed to gauge the lasting impact of inflationary pressures. Meanwhile, private demand is on the rebound,” the statement noted.

“The recent data suggest the risks to inflation have tilted to the upside, but it will take a little longer to assess the persistence of inflationary pressures. Private demand is recovering,” the statement reads.

“Labour market conditions still appear a little tight but further modest easing is expected.

“The Board therefore judged that it was appropriate to remain cautious, updating its view of the outlook as the data evolve.”

Graham Cooke, head of consumer research at Finder, said the predictability of the RBA’s movements was becoming harder to judge.

“Just a few months ago, another rate cut looked within reach. Now, we have the most divided panel I’ve seen in years. Nobody knows which way the RBA will go next,” Cooke said.

“Borrowers should tread carefully over the festive period. You don’t want to go into the New Year with a Christmas debt hangover, especially when your mortgage could be getting more expensive.”

While financial markets were entertaining the possibility of an interest rate hike, many economists say it’s likely the RBA will enter 2026 with a cautious view.

”Financial markets are fickle and interest rate predictions can move quickly,” AMP deputy chief economist Diana Mousina said.

“It’s clear that a rate cut will not be part of the policy debate in the near-term.

“But there are still more risks for a rate cut than a rate hike in 2026.”

Mousina said while the RBA board was unlikely to lower rates anytime soon, it did not mean it would rush to raise them, unless the consumer price index spiked.

While inflation remains slightly above the central bank’s, current economic conditions don’t warrant a panic lifting of rates.

“We expect that inflation will trend down rather than up in 2026, and we see trimmed mean back around the midpoint in the second half of 2026,” Mousina said.

“Wages growth is moderating, immigration is slowing from recent levels, public spending growth is softening and adding less demand into the economy, global energy prices are set to fall as wars are likely to be resolved and China’s deflation will help to contain goods prices.” 

Sally Tindall, data insights director at Canstar.com.au, urged borrowers not to wait for the central bank to get on a sound financial footing.

“Borrowers with a mortgage should not plan for any further rate relief in 2026, and instead, start preparing for a potential hike, just in case one materialises later next year,” she said.

“The RBA is not going to spring a rate hike on borrowers without ample warning, however, if the central bank isn’t on track to get inflation back into the target band as forecast, then it could be forced to act.

“While we wait for the RBA to make up its mind, there is one lever borrowers can pull right now – their own equity.”

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