RBA holds interest rates steady as inflation concerns persist
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In a widely anticipated move, the Reserve Bank of Australia (RBA) has decided to maintain the cash rate at 3.60 per cent during its final meeting of the year. This decision comes as inflation continues to weigh heavily on the Australian economy, leaving mortgage holders without further relief for the remainder of 2025.
Despite three rate cuts earlier this year, the RBA’s cautious stance reflects ongoing concerns about inflation, which has consistently exceeded the bank’s target range of 2-3 per cent. The latest figures reveal headline inflation at 3.8 per cent and the trimmed mean at 3.3 per cent.
Ivan Colhoun, Chief Economist at CreditorWatch, noted the decision was largely expected given the current economic climate. “Key here will be the extent to which inflation is judged to be persistently running at a rate inconsistent with a return to 2.5 per cent inflation, along with assessments of momentum and spare capacity in the economy,” Colhoun explained. He added that a higher-than-expected inflation print in the fourth quarter could lead to an interest rate hike early next year.
Echoing this sentiment, Dr Nicola Powell, Domain’s Chief of Research and Economics, stated that the decision to hold rates was already “baked in.” Powell highlighted the ongoing battle with persistent inflation, particularly in areas such as rents, energy, and insurance costs, which remain elevated. “The RBA is still battling persistent inflation, and with rents, energy and insurance costs remaining high, plus stronger-than-expected household spending, thereâs simply no room for a fourth cut this year,” she said.
Powell also pointed out a shift in market expectations, with financial markets now anticipating an increase in interest rates rather than a decrease. “Whatâs more interesting is how expectations have shifted. Financial markets see the next move as an increase, rather than a decrease, with a 25 basis-point hike largely priced in before the end of 2026,” she added.
For the housing market, the rate hold is expected to provide a degree of stability for both buyers and sellers, as prices are unlikely to rise as rapidly. However, Powell cautioned that borrowers will continue to feel the impact of high mortgage repayments, as rates remain elevated compared to the pre-tightening cycle of 2022.
The ongoing strain of mortgage costs has become a significant concern for many Australians. According to the Canstar Consumer Pulse Report, mortgage expenses are the top financial worry for 2026, with 21 per cent of respondents citing it as their primary concern. The report also highlighted that housing costs, including mortgages and rents, have more than doubled over the past five years.
Despite these challenges, 66 per cent of owner-occupiers believe they will manage the rates in 2026. However, renters are feeling the pinch, with over 50 per cent experiencing rent increases in 2025, averaging an additional $62 per week. This has forced 42 per cent of renters to cut back on spending, and 17 per cent to relocate in search of more affordable housing.
As the debate continues over whether interest rates will rise in 2026, some experts suggest that fixed-rate mortgages could offer a solution to borrowers seeking financial stability. Analysis by Finder indicates that a homeowner with a $600,000 mortgage at an average rate of 5.52 per cent could potentially save $4,079 next year by switching to the lowest fixed rate of 4.48 per cent, assuming the cash rate remains unchanged.
Graham Cooke, Finder’s Head of Consumer Research, discussed the potential benefits of fixed rates for those struggling with financial uncertainty. “If you are really struggling and need the certainty of set repayments to manage your budget, fixed rates can provide that emotional security and certainty,” Cooke advised.
However, Cooke also warned of the risks associated with locking in a fixed rate. “If variable rates do drop, you could be stuck paying a higher fixed rate or face a penalty of thousands of dollars to get out,” he cautioned, highlighting the potential pitfalls of trying to predict market movements.
As Australians navigate these challenging economic conditions, the RBA’s decision to hold rates underscores the delicate balance between managing inflation and providing relief to borrowers. With the prospect of further rate changes looming in 2026, both homeowners and renters will need to remain vigilant in managing their financial commitments.
The article was first published in Real Estate Business, a sister publication of Property Buzz.