Backing a Cup Day RBA rate cut? It’s a long shot

The highly anticipated inflation data is in, and it’s bad news for anyone hoping for a November – or even a 2025 – rate cut.

The RBA monetary policy board will meet next week and again in December, but neither meeting is expected to herald relief for struggling variable rate mortgage holders. 

At least, that’s the opinion of all four big four bank economists – and most other industry experts – following the release of a shock inflation read on Wednesday.

The RBA’s preferred inflation measure, trimmed mean inflation, rose 1% in the three months to September, according to figures from the Australian Bureau of Statistics – a level already dubbed a “material miss” by RBA governor Michele Bullock.

The cash rate is the only weapon the central bank holds against inflation and is generally what determines interest rates on home loans and the likes.

Lifting the rate works to reduce inflation in part by increasing financial pressure on households, thereby reducing demand for goods and services in the economy, while cutting it can ease financial strain and encourage spending.

The RBA monetary policy board aims to keep inflation at the mid-point of its 2% to 3% target band – trimmed mean is now on the edge of that target, having risen 3% year-on-year.

How did big bank economists react to the CPI shock?

It only took Westpac an hour to rescind its previous forecast of a November rate cut in the wake of the Wednesday release.

The bank’s economics team, headed by former RBA assistant governor Luci Ellis, now warns that even a February rate cut mightn’t be on the cards.

Previously, Westpac was not only the sole big four bank predicting a November cut, it was also alone in expecting another 75 basis points of easing in the current cycle.

As of Friday afternoon, Westpac is forecasting the next RBA rate cut to come in May 2026, with another on the cards for August 2026.

Meanwhile, economists at CommBank, NAB, and ANZ have each doubled down on their expectations that August would be the final rate cut of 2025.

Looking further out, though, CommBank head of Australian economics Belinda Allen has scrapped predictions of a February rate cut.

“We now expect the RBA to remain on hold from here,” she said.

“We expect it would take a material move higher in the unemployment rate, together with more moderate inflation prints, to bring the RBA back to the cutting table.”

The RBA has a dual mandate to control inflation while keeping as many jobs as possible.

Inflation and unemployment often move in opposing directions – when one falls, the other typically rises.

Meanwhile, NAB retains expectations of one more RBA rate cut.

“NAB continues to expect that the RBA will be on an extended pause, pencilling in a cut in May 2026 as it seeks to gain more understanding of both labour market and inflation dynamics,” the bank’s senior markets economist Taylor Nugent said.

Simultaneously, ANZ head of Australian economics Adam Boyton said the smallest big four bank continues to predict a February rate cut, but the risk lies in that being pushed back or abandoned.

What can borrowers expect from the RBA’s Cup Day meeting?

Ultimately, not much.

The RBA board is largely expected to unanimously agree to hold the cash rate at 3.60%.

Meanwhile, the hawkish tone adopted in the September post-meeting statement is generally predicted to remain.

Mr Boyton predicts the board and Ms Bullock will describe the jobs market as “a little tight”, even considering the upside surprise to unemployment realised in September.

The RBA board will release its post-meeting statement, revealing its decision, at 2:30pm AEDT on Tuesday – half an hour before the Melbourne Cup runs.

Ms Bullock will address questions from media at a press conference an hour later.

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