Australia Set to Keep Key Rate Unchanged as Easing Cycle Falters

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(Bloomberg) — Expectations for Australia’s central bank meeting this week are straightforward: policymakers will leave interest rates unchanged, and Governor Michele Bullock will steer clear of any guidance as the outlook grows murkier.

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Economists unanimously expect the Reserve Bank will keep rates at 3.6% at its Nov. 3-4 meeting, a Bloomberg survey showed, after consumer prices surged beyond expectations. Overnight-indexed swaps also indicate a pause is all-but guaranteed, with the next cut only priced in for May 2026. 

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“With the latest inflation number it’s probably going to be difficult for the RBA to cut rates again in the short term,” said Sam Konrad, a Singapore-based portfolio manager for Jupiter Fund Management. “When you look at the Australian economy, there are mixed data points so I don’t think there’s an urgent need to cut rates further from here. What’s most important is that they make sure inflation is under control.”

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The rate decision and statement will be published at 2:30 p.m. in Sydney on Tuesday —  with investors keeping a close eye on the board vote for any defections — and the RBA will simultaneously release its quarterly update of economic forecasts. Bullock holds a press conference an hour later. 

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Australia’s anticipated pause will come a few days after the Federal Reserve cut its key rate for a second consecutive meeting, and despite a hawkish bent, markets still see a decent chance the US central bank will ease again in December as job gains slow. 

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Forecasts for RBA policy shifted sharply last week after core inflation climbed 1% in the third quarter from an upwardly revised 0.7% in the prior three months. On an annual basis, core prices advanced to the top of the RBA’s 2-3% target.

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The acceleration was broad-based and validated the central bank’s worries that inflation, in particular the services component, is proving sticky. Domestic demand is strengthening in response to government income tax cuts and energy rebates earlier this year, while the RBA’s prior rate cuts are also gradually filtering through the economy. 

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As a result, the Australian dollar was the best performing major currency last week. It has become a “hot favorite” among investors helped by a hawkish RBA, better risk appetite and easing US-China trade tensions, according to Alex Loo and Prashant Newnaha at TD Securities Ltd.

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Recent data showed credit growth and house prices have picked up, suggesting financial conditions aren’t overly restrictive. Bullock has described current policy as still a little bit tight. 

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“The underlying momentum of inflation is far stronger than the RBA was expecting,” said George Tharenou at UBS AG. “The key question now is whether to delay the next cut, or to call the trough” in the rate cycle.

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UBS expects the RBA will stand pat until at least May 2026.