The Reserve Bank of Australia has decided to keep the cash rate on hold at 3.6% at its December 2025 monetary policy meeting, dashing the hopes of mortgage holders hoping for some Yuletide interest rate relief.
The unanimous decision by board members to keep rates on hold was widely expected.
However, at a post-meeting press conference, the RBA Governor Michele Bullock indicated the next move by the bank is likely to be a rate rise, saying her current view was that “additional cuts are not needed” and that she didn’t think there were “interest rate cuts on the horizon.”
The details
After three interest rate cuts this year in February, May and August, hopes for more mortgage relief in time for Christmas were dashed by higher-than-expected inflation figures released in late November.
The ABS figures showed annual headline inflation rose 3.8% to the end of October 2025, with core inflation at 3.3%.
Both figures were above RBA forecasts and outside the central bank’s 2–3% inflation target band.
The figures prompted financial markets and three of Australia’s big 4 banks to predict that the RBA had reached the bottom of its current easing cycle and the next move in rates would be up.
However, announcing that rates would remain on hold at 3.6% after its December monetary policy meeting, the RBA monetary policy committee gave few clues about which way rates may be headed.
“The Board’s judgement is that some of the recent increase in underlying inflation was due to temporary factors and there is uncertainty about how much signal to take from the monthly CPI data, given it is a new data series,” the media release accompanying the decision states.
The “new data series” is a reference to recent changes in the way Australia’s official statistician publishes inflation data.
“Nevertheless, the data do suggest some signs of a more broadly based pick-up in inflation, part of which may be persistent and will bear close monitoring,” the RBA Board says.
Westpac is the only major Australian bank that still believes the RBA’s next move will be down, not up, forecasting two more 0.25% rate cuts next year.
Senior Economist Pat Bustamante says the RBA’s statement doesn’t contradict that view.
“One of the … key passages there towards the end of the statement is that the board needs a bit more time to work out whether this higher-than-expected inflation will persist going forward,” he says.
“We (at Westpac) think there'll be a gradual easing in the labor market.
“Wage pressures will come down and you'll see this in inflation next year,” he told ABC News.
However, in her usual post-meeting press conference, the RBA Governor Michele Bullock seemed to adopt a considerably more hawkish tone, revealing the monetary policy committee hadn’t even considered the case for another rate cut, but had been discussing the economic circumstances that might lead it to hike rates.
“We didn't consider the case for a rate cut at all,” she said.
“We didn't explicitly consider the case for a rate rise at this meeting, but we did consider and discuss quite a lot of the circumstances and what might need to happen if we were to decide that interest rates had to rise again at some point next year.”
Asked about the possibility of a rate cut, Ms Bullock was blunt.
“I would say at this moment that given what's happening with underlying momentum in the economy, that it does look like additional cuts are not needed.
“I don't think there are interest rate cuts on the horizon for the foreseeable future,” she said.
Implications for the property market
Cotality’s Research Director, Tim Lawless, says he expects official interest rates will remain on hold indefinitely and that “an extended period of stable interest rates against a backdrop of rising home values is likely to temper home purchasing demand.”
However, he says the demand for cheaper or “lower quartile” homes will remain strong, “as mainstream demand is deflected towards the lower price points amid affordability and serviceability constraints.”
“Competition among first-home buyers and investors is already seeing values rise faster across the lower price points of the market.
“Conversely, growth in house values across the upper quartile markets of Sydney and Melbourne has already shown signs of flattening as demand funnels towards more affordable housing options,” he says.
Eleanor Creagh, the Senior Economist at rival property data firm REA Group, says national home price momentum “firmed throughout 2025, but stretched affordability means growth remains well below the 20-30% annual gains seen in past booms.”
“With new supply constrained, these factors will keep upward pressure on prices throughout summer.
“However, monthly growth eased in November across the capitals from October’s stronger pace,” she notes.
“With interest rates now expected to remain on hold for an extended period, affordability constraints are likely to see price growth moderate throughout 2026.”