Markets are pricing virtually no chance of a September rate cut following stronger-than-expected inflation data.
The market is near-unanimously forecasting rates to remain unchanged when the Reserve Bank of Australia (RBA) Monetary Policy Board announces its cash rate decision tomorrow (30 September).
All four major banks expect the central bank to hold the cash rate steady at 3.60 per cent on Tuesday.
That view has been supported by monthly inflation data for August, which came in higher than expected last week, reaching its highest annual pace since July 2024.
After the figures were released, National Australia Bank (NAB) revised its cash rate forecast, stating that there would be no reduction to the official cash rate until May 2026 (it had previously predicted 25-basis-point cuts in November 2025 and February 2026).
NAB senior markets economist Taylor Nugent said “the risks have shifted” and added: “The outcome of the August Indicator suggests there is meaningfully more inflation pressure in the domestic economy than we, and the RBA, had expected.”
Westpac senior economist Mantas Vanagas also noted that the market-implied path for the RBA cash rate had shifted higher again.
“Current pricing suggests around a 60 per cent probability of a rate cut before year-end,” he said.
The major expects rates to remain on hold in September and maintains its base case of interest rate cuts in November, February, and May.
Australia and New Zealand Banking Group (ANZ) is also forecasting that there will be no change to rates this week.
The bank’s head of Australian economics, Adam Boyton, said: “Consumer spending is lifting, although measures of confidence remain soft; and business conditions and forward orders are around long-run average levels. All this together means the case for lower interest rates may end up less compelling than market pricing suggests.”
ANZ continues to expect a November rate cut and that, once the cash rate reaches 3.35 per cent, it would likely stay at that level for a “considerable period”, Boyton added.
The Commonwealth Bank of Australia (CBA) expects a hold this week before one last 25-bp rate cut in November.
However, its economists Harry Ottley and Trent Saunders said the key takeaway from inflation data was that a November cut was “not a done deal”.
CBA head of Australian economics, Belinda Allen, added: “The August CPI data suggests a November rate cut is by no means guaranteed and will be highly dependent on the data flow from here.”
The RBA Monetary Policy Board will announce its cash rate decision on Tuesday, 30 September 2025.
The central bank voted in a unanimous 9-0 decision at its August meeting to drop the cash rate by 25 bps.
[Related: NAB says rates will not drop until May]
