Australia: Central Bank leaves rates unchanged in December
Latest bank decision: At its December meeting, the Central Bank decided to leave the cash rate at 3.60%, following 75 basis points of cuts earlier in the year.
Inflation concerns motivate hold: Inflation has ticked up in recent months to above the Central Bank’s 2.0–3.0% target, and has been higher than the Bank expected. This, coupled with recovering domestic economic activity and the Bank’s desire to assess the impact of past rate cuts, likely motivated the hold.
Zero-to-mild monetary easing expected in 2026: The Bank’s forward guidance was open-ended. Our panelists are broadly split on the outlook for 2026: Some anticipate further monetary easing as inflation pulls back, while others see rates on hold. Our Consensus is for a terminal cash rate of just above 3% in the longer term.
Panelist insight: On the outlook, Goldman Sachs analysts said:
“Looking ahead, we continue to expect the RBA to keep the policy rate at 3.60% for the foreseeable future, on the assumption the 4Q2025 CPI (29 Jan) report confirms that the historically large upside surprise in 3Q2025 was partly just volatility. However, we caution that the balance of risk continues to skew towards the next move in rates being higher.”
In contrast, United Overseas Bank’s Lee Sue Ann said:
“Although inflation remains the central focus now, we anticipate that restoring consumer demand will become the dominant issue ahead, likely requiring a more accommodative policy stance and additional rate cuts. For now, we are penciling two more 25-bps rate cuts by the RBA by 1H26.”