Economists say inflation numbers mean no cuts until well into 2026
- All of the major banks are now officially predicting no more cash rate cuts until at least 2026.
- Commbank think the RBA has now reached the terminal rate, while Westpac, ANZ, and NAB all still expect one more cut in 2026.
- Westpac economist Luci Ellis says its still possible the RBA will be "surprised" by the extent that the labour market softens next year.
Economists at the major banks have quickly revised their forecasts for the future of the cash rate after the ABS revealed annual inflation to September was 3.2% - back outside of the RBA target band.
Westpac has changed its official prediction to a hold at next week's monetary policy decision, and its chief economist and former RBA assistant Governor Luci Ellis said the extent of the upside surprise means even a February rate cut is now questionable.
"We are conducting a full reassessment for the cash rate outlook in light of both the inflation outcome and the evolving picture on domestic demand," she said.
Commbank meanwhile has retracted its prediction for a final rate cut early next year, with head of Australian economics Belinda Allen now expecting the RBA to keep rates at 3.60% for the long term.
"Higher inflation and the cyclical upswing in demand now underway, driven largely by consumption and housing, will see the RBA conclude the economy needs the cash rate to remain in slightly restrictive territory," she said.
Bendigo Bank has also walked back its November rate cut call, while ANZ and NAB still expect one more rate cut at some stage in 2026 for now.
Any chance of further rate cuts this year?
Australia's economic pundits are almost all unanimous that the jump in inflation means there's now very little chance of a Melbourne Cup Day rate cut.
"A Cup Day rate cut is now at best around a one in 12 chance, having been an odds-on favourite a few days ago," Bendigo Bank chief economist David Robertson said.
After next week's decision, there's still one more RBA meeting before the end of the year, and ANZ head of Australian economics Adam Boyton noted the RBA board still has the "option" of easing on December 9.
"However, in the wake of [Q3] CPI the hurdle for any easing this year is now very high," he said.
The RBA will have the benefit of the September GDP and October unemployment figures by the time the December decision comes around.
Potential labour market 'surprise' in 2026?
Most economists don't consider the recent jump in unemployment - up to 4.5% in September - significant enough in itself to make the RBA consider a cut.
The number of employed Australians still grew by 15,000 people while RBA Governor Michele Bullock said she still thinks the labour market is "a little tight" on Monday.
However, Ms Ellis says Westpac expects the RBA to be 'surprised' by the extent that the labour market continues to soften in 2026.
"The RBA has been working on the assumption that a flat trend in forecast participation rates is consistent with a balanced labour market," Ms Ellis said.
"By contrast, we would view such an outcome as implying latent labour market slack as the upward trend in participation rates for female and older workers continues."
She said that in 2027, private sector demand is expected to pick up, improving the jobs market, but also thinks by that point inflation could be below the target midpoint.
"[That] would point to scope for less restrictive monetary policy," she said.
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