Bank’s economists cite persistent inflation and robust consumer activity for revised outlook
Commonwealth Bank (CBA) economists have postponed their forecast for the next Reserve Bank of Australia (RBA) interest rate cut to February 2026, citing a combination of firmer inflation, robust consumer activity, and a resilient labour market.
The forecast update follows recent data showing underlying inflation remains stubborn, prompting CBA to move its previous expectation of a November 2025 rate reduction further into the future.
The RBA left the cash rate unchanged at 3.60% in September, a decision widely anticipated by financial markets and economists. Market expectations for further rate cuts have steadily receded in recent weeks, with the terminal cash rate now projected at around 3.25%, aligning more closely with CBA’s estimate of 3.35%.
Last week, fellow Big Four bank, NAB, also revised its outlook for the central bank’s next cash rate reduction. NAB now expects the first cut to take place in May next year, having previously forecast two reductions – one in November and another in February. Westpac has lowered its near-term expectations due to persistent services inflation, while ANZ forecasts the RBA will keep rates steady through 2025 unless the labour market deteriorates.
The RBA’s accompanying statement on Tuesday’s interest rate call took a more hawkish tone than expected, highlighting that “the decline in underlying inflation has slowed.” The August consumer price index (CPI) showed core inflation components above forecasts, a trend acknowledged by the central bank.
“We expect the RBA will want to wait and see evidence that inflation continues to head towards the midpoint of the target band before easing further,” said Belinda Allen (pictured right), head of Australian economics at Commonwealth Bank. “By February the Q4 CPI print will be available, as will further evidence of how the economy has responded to the three rate cuts to date.”
Allen also noted that a further rate cut is not guaranteed, with risks increasing that rates could remain unchanged for a longer period. The RBA governor has reiterated the need for inflation to reach the 2.5% target, rather than remaining above it through the forecast period.
Looking ahead, CBA economists expect inflation to gradually move towards the midpoint of the target range at 2.5% by the end of 2026, wages growth to moderate, and the economy to return to trend growth of about 2.25%. They said that under these conditions, the cash rate would return to a neutral level, estimated at 3.25%.
However, if inflation remains above the midpoint and businesses pass on higher costs, Allen said the cash rate could stay at restrictive levels.
The RBA’s November meeting will include updated forecasts, likely reflecting stronger GDP growth and adjustments to inflation projections. Market pricing has shifted, reducing expectations for further easing, and currently assigns a 40% probability to a rate cut in November.
The decision to hold the cash rate on Tuesday was unanimous, in contrast to the divided vote in July. The absence of commentary on the direction of future rate moves underscores the RBA’s data-dependent approach as it navigates the end of the tightening cycle.
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