The cash rate will remain on hold until at least February while the Reserve Bank continues grappling with an inflation surge and an accelerating economy.
The RBA confirmed the decision at its final meeting of the year, aligning to market expectations by holding steady for the third month in a row.
“As expected, the RBA held the cash rate steady at 3.60%,” REA Group senior economist Eleanor Creagh said.
The RBA left interest rates at 3.6% in its final decision of 2025, with rates now on hold until at least February when the central bank next meets. Picture: Getty
In its post-meeting statement, the RBA board said recent data suggest the risks to inflation have "tilted to the upside", but said it will take a little longer to assess the persistence of inflationary pressures.
"The board therefore judged that it was appropriate to remain cautious, updating its view of the outlook as the data evolve," The RBA said.
Households with a mortgage can view the outcome as a positive one, with growing concerns about persistent inflationary pressures and the RBA’s ability to manage them now pointing towards rate hikes for 2026.
It’s a sharp turnaround from forecasts as recent as October which suggested Aussies could be in for one more rate cut before the end of the year.
Speaking at a press conference following the decision, RBA governor Michele Bullock said a rate cut was not considered at the December meeting, but the prospect of a hike was discussed.
"We did not explicitly consider the case for a rate rise at this meeting, but we did consider and discuss quite a lot circumstances and what might need to happen if we were to decide that interest rates had to rise again at some point next year," Ms Bullock said.
"Certainly there was no cut on the table and no-one suggested that there be a cut."
Two pieces of crucial data – the next Consumer Price Index and jobs figures – will determine which card the RBA will choose to play when it next meets in February. In the meantime, the bank’s assessment of the labour market, unemployment figures and household spending over Christmas will inform its next set of forecasts ahead of the decision.
Rate hikes ahead?
The unexpected resurgence of inflation has been the talk of the market since September quarterly inflation data confirmed figures were higher than the RBA has anticipated.
October Consumer Price Index data from the Australian Bureau of Statistics then backed this up, confirming trimmed mean inflation was up 3.3% annually. This measure of inflation, which strips out volatile and one-off price movements, is the figure the bank relies on for its cash rate decision making and is now well outside its 2-3% target range.
“Interestingly, the unemployment rate dropped slightly to 4.3%. And while that’s great news for working Australians, a strong labour market will give the RBA confidence that the interest rates can stay higher for longer,” Mortgage Choice chief executive Anthony Waldron said.
Three of the big four banks no longer expect another rate cut this cycle.
HSBC brought forward its forecast this week and is now anticipating a rate increase next year – a major move which follows three of the big four big banks scaling down any expectations of cuts dramatically.
Commonwealth Bank, ANZ and National Australia Bank are all agreed borrowers won’t see any rate relief in the near future, while lenders began winding in expectations and locking fixed rate offers last week.
Westpac still expects two further rate cuts in 2026, likely in May and August.
Home prices still rising
The three rate cuts delivered earlier this year have already fuelled a new momentum in the housing market over 2025.
Median prices rose for 11 consecutive months to reach record highs in 2025, with record growth seen in several states.
“National home prices rose 0.5% in November and are now 8.7% higher than a year ago, the fastest annual growth since mid-2022,” REA Group senior economist Eleanor Creagh confirmed.
“Momentum has firmed throughout 2025, but stretched affordability means growth remains well below the 20-30% annual gains seen in past booms.”
Perth (+15.5%), Darwin (+14.1%) and Brisbane (+13.7%) were the best performing capital cities over the last year, while Sydney remains the most expensive city in the country to buy a home, with an all-time high median price of $1.24m.
Regional areas have also climbed in value throughout 2025, up 9.3% year-on-year and continuing to outpace capitals over both the past 12 months and the last five years.
REA Group senior economist, Eleanor Creagh.
Lower interest rates are being the year’s price acceleration, momentum that is likely to dampen in 2026 as rising inflation quashes public confidence.
New year outlook
As for the RBA’s next move, Ms Creagh said the bank will remain “on watchful pause” until sustained patterns in data are clearer.
“The RBA will need clear evidence that inflation pressures are easing once more before cutting rates again,” she said.
“With interest rates now expected to remain on hold for an extended period, affordability constraints are likely to see home price growth moderate throughout 2026.”
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