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- The RBA meets next week for its last monetary policy board meeting of the year
- There is little prospect of any change to the 3.6% cash rate
- The board will consider recent data showing the economy is growing and inflation is back
- Many economists do not expect any move to the cash rate in 2026
Further rate cuts were all but off the table for 2026 after last week's October inflation read came in stronger than expected.
The RBA board has been nothing but consistent in ramming home that inflation is enemy number one to the Australian economy.
After judging it back in the bottle by the start of 2025, the Reserve Bank's monetary policy board made three cuts to the cash rate in February, May, and August, easing pressure on mortgage-holders and effectively putting more money in their pockets.
But this week's national accounts data shows when households see extra cash, they tend to spend it - and that can lead to inflationary pressures regathering.
What does the data say?
Household consumption rose 0.5% in the September quarter and 2.5% over the year, supported by growth in disposable income.
But it hasn't been a mindless spending spree - the savings rate also tracked higher to 6.4%, indicating households chose to both spend and save as incomes grew and interest rates eased.
Gross Domestic Product, the standard measure for overall economic health, also grew 0.4% for the September quarter and 2.1% yearly, its fastest annual rate in more than two years.
Stronger growth, along with a resilient labour market, rapidly escalating house prices, and a resurgence of inflation, means further cuts to the cash rate are likely off the agenda in the near future.
Economists suggest the Australian economy has reached its current 'speed limit', meaning it's soaked up its spare capacity (in part created by interest rate cuts) and is on the path of faster-than-expected growth.
Growth a good thing, but...
CommBank's head of Australian economics Belinda Allen said while the recovery is welcome, it also means inflation risks are shifting.
By this, she means shifting higher - and we all know how much the RBA monetary policy board despises inflation.
There's little doubt the cash rate will remain at 3.6% after the RBA's final meeting of the year on 8-9 December.
Economists expect RBA governor Michele Bullock to emerge with her customary cautious tone, perhaps with some acknowledgement of "upside risks".
Through the week, she told a Senate Estimates committee that demand pressures could force a rethink on monetary policy.
Though this will likely hinge on full quarterly inflation data due in late January, right on cue for the first RBA meeting of 2026 on 2-3 February.
Where to for the cash rate in 2026?
This week, ANZ scrapped its forecast of one final RBA rate cut in the first half of 2026, "given recent inflation pressures".
It joins CommBank and NAB in predicting the 3.6% cash rate will remain on an extended hold throughout 2026.
Only Westpac is sticking with its forecast of two more interest rate cuts in 2026 - pencilled in for May and August, believing the resurgence in inflation is temporary and will moderate.
Other economists are saying a rate hike may be back on the table next year.
Ms Bullock will no doubt be leaving such conjecture and forward-looking well alone when she gives her customary post-meeting media conference on Tuesday afternoon at 3:30 pm (AEDT).
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