Insights from the RBA September Cash Rate Announcement

Summary

• 9-0 vote to keep rates on hold 
• RBA issues inflation warning with hawkish tone
• Domestic recovery takes precedence over global uncertainty

RBA happy to wait and see in September

The RBA has maintained the cash rate at 3.6 per cent as it repeats the ‘cut-hold’ cycle for the third time. This unanimous decision was accompanied by a hawkish tone as the Board appeared to signal that rate cuts may be more gradual, and less certain, than previously anticipated.

Interim data since the August meeting is showing stronger-than-expected GDP growth, an easing but resilient labour market and early indicators pointing towards a rebound in CPI. It is important to note that while headline inflation rose to 3 per cent for August, the highest for the year, little emphasis is given to this more volatile monthly release by the RBA. However, the stickiness of service and housing inflation as well as the roll-off of energy subsidies are expected to be reflected to some extent in the official Q3 release due before the next meeting.

Statement by the Monetary Policy Board

In the Monetary Policy Decision for September, there was a notable shift to focusing on domestic economic activity before global uncertainty. In particular, the Board noted that private consumption is picking up as real household incomes rise and some measures of financial conditions ease. It also pointed out that the housing market is strengthening, a sign that recent interest rate decreases are having an effect.

The Board chose to use different language in regards to inflation, noting that ‘the decline in underlying inflation has slowed’, as opposed to ‘inflation is moderating’ used in previous statements.

Recent data, while partial and volatile, suggest that inflation in the September quarter may be higher than expected at the time of the August Statement on Monetary Policy,’ the Board said.

Otherwise, this statement employed the usual caveat for 2025 that uncertainty in the global economy remains elevated. On balance, the Board still expect impacts of trade policy development to be adverse, weigh on aggregate demand and lead to weaker outcomes in the domestic economy.

Our take

The Australian economy is showing green shoots as the three previous rate cuts filter through the economy. However, spending patterns reveal significant disparities among different groups of Australian consumers. Australia remains a bifurcated consumer market where one cohort awaits further ‘rate-relief’ while another continues to benefit from the wealth effect of increasing asset and property prices through 2025. National surveys show that cost of living pressures remain the top concern for Australians (59% IPSOS Issues Monitor July 2025). While fiscal policy decisions, including taxation, can provide a targeted response to this, monetary policy can only respond to the aggregate outcome across these divergent consumer segments in Australia.

In the face of inflationary pressures, the challenge remains for the RBA to discern appropriately restrictive settings with the blunt application of its policy. At a headline economic level, the RBA has admitted that domestic data, including GDP and employment, have continued to be in line or slightly stronger than expectations. Households and businesses continue to show strength with credit growth 7.2 per cent year on year for August compared to a ten year average of 5 per cent and no meaningful levels of defaults or delinquencies.

These local outcomes will continue to challenge market expectations around further rate cuts as the RBA will seek to balance stimulation of the domestic market with the increasing risk of a rebound in inflation.

Martin Wilkinson

Head of Investments

martin.e.wilkinson@allianz.com.au

Adam Downy

Senior Investment Associate

adam.j.downy@allianz.com.au

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