The Reserve Bank of Australia (RBA) kept the cash rate unchanged at 3.60% in September 2025, noting that monetary policy remains “probably still a little restrictive” but that the recent easing cycle continues to transmit through financial conditions.

• The decision followed the August rate cut, with the Board judging that current settings are appropriate while awaiting further data on inflation and labor trends.

• Inflation in the September quarter is expected to come in higher than previously forecast, led by stronger outcomes in new dwellings and market services prices, and by shifts in electricity rebate timing.

• The labor market remains “a little tight,” with the unemployment rate steady at 4.2% in August and underemployment edging lower, though employment growth has slowed.

• Real disposable income has risen over the past year, supported by strong employment, real wage gains, and Stage 3 tax cuts, contributing to a modest recovery in household consumption.

• Housing credit growth has picked up, particularly among investors, while household debt-to-income ratios have stabilized after gradual declines.

• Globally, the Fed, Bank of Canada, and RBNZ have all eased policy amid softening labor markets, while inflation concerns have lifted rate expectations in the UK and euro area.

• The Board highlighted upside risks from persistent services inflation and stronger consumption, but also downside risks from weak consumer sentiment and slowing employment.

• Members reaffirmed a cautious, data-dependent stance and will continue to monitor inflation, demand, and labor developments closely before adjusting policy further.

The RBA cut the cash rate by 25 bps to 3.6% in August 2025, with the Board judging that further easing will likely be required to ensure inflation returns sustainably to target while maintaining full employment.

• Underlying inflation eased to 2.7% YoY in Q2 (Q1: 2.9%), with headline inflation at 2.1% YoY; near-term volatility is expected from electricity rebate unwinds, but the medium-term forecast remains ~2.5%.

• GDP growth is projected to pick up gradually, supported by private and public demand, though forecasts were revised slightly lower due to weaker productivity growth assumptions.

• Labour market conditions eased modestly, with unemployment rising to 4.3% and employment growth subdued, though participation rates and vacancies remain high.

• Financial conditions have loosened as earlier cuts lowered mortgage and business borrowing costs; housing activity and credit growth have begun to lift.

• Global risks remain tilted to the downside, particularly from US trade and fiscal policy, but downside scenarios have become less extreme; Chinese growth is expected to hold up with fiscal support.

The RBA left the cash rate unchanged at 3.85% in July 2025, as a majority of Board members opted to wait for further confirmation that inflation is sustainably returning to target.

• Underlying inflation is still expected to ease but remain in the upper half of the 2–3% range; headline inflation may rise temporarily in late 2025 as energy subsidies unwind.
• Financial conditions have eased after earlier cuts in February and May, and market pricing anticipates two more cuts by year-end.
• Household credit growth remains subdued; saving ratios are elevated and housing credit demand is still weak despite lower rates.
• Labour market conditions remain tight, with unemployment steady and job vacancies still high, though wage growth and job mobility have slowed.
• Global risks persist, including uncertain US trade policy, high fiscal deficits, and weak demand in China, but worst-case scenarios have become less likely.
• Members judged policy as still modestly restrictive, but easing financial conditions warranted a reassessment of timing for further cuts.
• The majority chose to hold in July, citing slightly stronger-than-expected data and preferring to wait for confirmation that inflation is on track to sustainably return to 2.5%.
• The minority favored an immediate cut, pointing to subdued GDP growth, weaker wage and services inflation, and rising downside risks to global growth.
• Members acknowledged that estimating the neutral rate and the degree of restrictiveness remains uncertain, advocating for a cautious and gradual approach.
• The Board agreed to begin publishing vote counts to improve transparency and emphasized a continued data-dependent strategy going forward.

Notes on the inflation outlook:

• Underlying inflation is still expected to return to the 2–3% target range by mid-2025, settling slightly above the midpoint.
• Recent monthly CPI data suggests trimmed mean inflation may fall below 3% in Q1 2025.
• Wage growth (WPI) has eased slightly, but unit labour costs have risen sharply (~5.5% YoY in 2024), complicating the inflation picture.
• Inflation risks are two-sided:

Notes on the employment outlook:

• The labour market remains tight, but with signs of easing:
• Some softening in labour market indicators (e.g., falling quits rate) may suggest reduced inter-firm competition for labour.
• RBA is closely monitoring labour market data, with uncertainty over whether capacity is greater than currently estimated.

Notes on the growth outlook:

• GDP growth picked up in Q4 2024 as expected, led by private and public demand.
• Household consumption is recovering, supported by rising real incomes and lower debt servicing costs.
• Business credit growth has strengthened, though housing credit has moderated.
• The domestic economy is tracking broadly in line with February forecasts, with risks on both sides:

Implications for monetary policy and key decisions:

• Cash rate held steady at 4.10%; Board judged conditions too uncertain to move either way.
• The February rate cut is still working through the economy; financial conditions remain “somewhat restrictive.”
• Major concern: increased global trade policy uncertainty, but domestic effects are not yet material.
• Policy remains focused on bringing inflation back to target without sacrificing labour market gains.
• The Board emphasized a cautious, data-dependent approach, with May flagged as a key decision point due to incoming data and new forecasts.
• The Board’s strategy remains to balance inflation control with employment preservation, and they reiterated that future moves are not predetermined.