By Devayani Sathyan
BENGALURU (Reuters) -The Reserve Bank of Australia will keep its key interest rate unchanged at 3.60% on Tuesday as an inflation spike delays policy easing, according to economists in a Reuters poll who now expect the next and final rate cut in the cycle in 2026.
Annual consumer price inflation jumped to 3.2% in the September quarter, above the top of the RBA’s 2%–3% target band, driven by higher power and services costs.
The RBA’s preferred core measure climbed 1.0% in the quarter, well above its forecast of near 0.6%. Governor Michele Bullock said on Monday even a 0.9% rise would be a “material miss” the board would need to weigh when deciding policy.
The stronger-than-expected reading has effectively shut the door on any near-term rate cuts and cast doubt on how quickly the RBA can start easing. Markets have sharply scaled back expectations, now pricing in only one cut by mid-2026.
All 34 economists surveyed October 29-30 – after the inflation data – expected the RBA to keep its official cash rate at 3.60% at the conclusion of its two-day meeting on November 4.
“The RBA was cutting because they could. They were normalizing policy because the inflation backdrop was giving them space to move rates away from more restrictive settings. The picture is now different,” said Taylor Nugent, senior markets economist at NAB.
Unemployment unexpectedly rose to a four-year high of 4.5% in September, but Nugent said inflation was more significant.
“Q3 inflation data is a pretty clear warning shot that maybe there is a bit more inflation pressure in the economy than they had earlier expected, and so we think they will be on hold for a while. Inflation is a much more important signal than the labour market in terms of the recent data flow.”
Just over 90%, or 30 of 33 respondents who had forecasts beyond next week — including major local banks ANZ, CBA, NAB and Westpac — expect the RBA to keep rates unchanged in December.
That marks a sharp shift from earlier this month, when three-quarters expected a cut by year-end and almost all predicted rates at 3.10% or lower by end-March 2026. Now, just under half see them falling to 3.35% or below by then.
Median forecasts showed one more rate cut by end-June, taking the cash rate to 3.35%. However, economists were divided — 12 predicted rates at 3.35%, six saw them at 3.10%, while 10 expected no change from 3.60%.
Rates were expected to be 3.35% at end-2026.
However, some economists warned if the labour market weakens further the RBA may be forced to cut rates more than markets anticipate.
“If the labour market cools more aggressively than expected, then inflation really isn’t going to be the problem you need to worry about — it’s going to be preserving the gains in the labour market, which has also been a stated aim of the RBA,” said Tony Sycamore, market analyst at IG Australia.
“Yes, you can rule out a November rate cut, but it doesn’t mean we’ve seen the end of the easing cycle.”
(Other stories from the October Reuters global economic poll)
(Reporting by Devayani Sathyan; Polling by Vijayalakshmi Srinivasan; Editing by Philippa Fletcher)
Comments