The Reserve Bank of Australia (RBA) kept the cash rate unchanged at 3.60% in a unanimous decision. Governor Bullock ruled out rate cuts in the interim, with a hold and a hike being considered. Our baseline remains for no change to the cash rate in either direction in 2026. However, risks are skewed towards a hike if upside risks to economic activity and inflation materialize, Standard Chartered's FX and Macro Strategist Nicholas Chia reports.

Bullock leans hawkish, signals no cuts ahead

"The RBA kept the cash rate unchanged at 3.60% in a unanimous decision, as expected. The statement warned of worsening capacity constraint pressures from the ongoing economic recovery amid poor productivity growth. That said, it also suggested that the labour market, while still a little tight, may loosen modestly. The central bank 'judged that it was appropriate to remain cautious'; we think it is trying to dissect the persistent demand pressures from one-off factors that may have contributed to the upside surprise in October CPI."

"Governor Bullock was more hawkish at the press conference as she all but ruled out rate cuts in the near term. Bullock suggested that the RBA board was weighing up an extended rate pause, or a rate hike, in 2026, as the balance of risks to activity and inflation has shifted to the upside. She reiterated the importance of the Q4 quarterly trimmed mean CPI so that the board can separate one-off price increases from inertial demand pressures."

"Our baseline remains for the RBA to hold the cash rate at 3.60% through 2026. While the economic recovery is underway, we did not pick up any noticeable signs of a re-acceleration in demand pressures in Q3 GDP growth. That said, it may well be that the economy is already running into capacity pressures, which are feeding into underlying inflation. We acknowledge upside risks to our terminal cash rate view, especially if incoming data on inflation and economic activity continues to surprise higher. The RBA judged the labour market as still a little tight, so it may take a significant increase in the unemployment rate for it to re-assess the balance of risks to the economic outlook."