Reserve Bank keeps cash rate on hold, revises inflation forecast

The board unanimously agreed to keep the cash rate at 3.6 per cent at its second-last meeting of the year.

Reserve Bank governor Michele Bullock said the board was cautious amid an uptick in inflation, but believed the cash rate was in the right place to respond if further risks arose.

While households might have been holding out hope for an interest rate cut, the board's decision was largely expected by experts and the market.

Higher-than-expected quarterly inflation data, released in late October, firmed up predictions that the cash rate would remain on hold.

Headline annual inflation for the September quarter rose from 2.1 per cent to 3.2 per cent, exceeding the Reserve Bank's target band of 2 to 3 per cent for the first time in more than a year.

Underlying inflation, the central bank's preferred measure, rose on an annual basis from 2.7 per cent to 3 per cent.

Meanwhile, labour force figures from September showed unemployment rose from 4.2 per cent to 4.5 per cent.

Ms Bullock said both sets of data were of concern to the central bank board.

"Naturally, the board are concerned about employment as well because that is part of their mandate, but I would say at the moment we are a little more concerned about making sure we get inflation sustainably back in the band," she said.

Ms Bullock said the September inflation spike would be "baked in" to the inflation figures for some time.

"This September blip will stay in the inflation numbers for basically the next 12 months, so [inflation] will have a three on it, which is not ideal," she said.

The Reserve Bank has revised its inflation forecast and is now expecting underlying inflation to rise to 3.2 per cent and remain there at least until the end of 2026.

It then expects it to settle at 2.6 per cent by the end of 2027.

Ms Bullock said Australia did not raise interest rates as high as other countries and, therefore, may not need to drop them as far.

"It's possible there are no more rate cuts, it's possible there are some more. But as I said earlier, we didn't go up as high and we might not have to come down as far," she said.

Treasurer Jim Chalmers said inflation had "ticked up" in most advanced economies in September.

"While millions of Australians would've wanted to see more rate relief, this decision was widely anticipated and widely expected by markets," he said.

The September inflation jump led the major banks to revise their expectations for the Reserve Bank's future cash rate moves.

Commonwealth Bank expected there would be no further cash rate increases for some time.

Belinda Allen, Commonwealth Bank's head of Australian economics, noted the September inflation result would be of "genuine concern for the RBA".

"We expect the central bank to take a more hawkish tone to avoid a return to higher inflation," she said.

Westpac now expects the next rate cut to happen in May 2026, followed by another cut in August.

"Although we expect the December quarter inflation data to be a lot less scary than the September quarter, we think it will take more than one quarter of data to convince the RBA that the inflation trend is still consistent with [its] target beyond the short term," Westpac chief economist Luci Ellis said.

NAB expects the Reserve Bank will keep the cash rate at 3.6 per cent until June 2026, when it predicts a 25-basis-point cut.

Out of the 35 experts and economists surveyed by comparison website Finder, 30 had forecast the Reserve Bank would keep the cash rate at 3.6 per cent in November.

Two-thirds of experts predicted at least one more cash rate cut in the next 12 months, with most expecting it will arrive in February 2026.