RBA leaves cash rate unchanged at 3.6% as inflation heats up

The Reserve Bank of Australia has left interest rates on hold as it awaits further data to confirm a potential new inflation spike.

The official cash rate will remain at 3.6% following the central bank’s September meeting, on the back of higher-than-expected headline inflation figures released last week.

The monthly Consumer Price Index (CPI) rose to 3% over the year to August – the highest annual inflation rate in 13 months.

In a statement following the decision, the RBA said it was appropriate to remain cautious.

“There are uncertainties about the outlook for domestic economic activity and inflation stemming from both domestic and international developments,” the statement said.

“The board remains alert to the heightened level of uncertainty about the outlook.”

It means headline inflation now sits at the top end of the RBA’s 2-3% inflation target, prompting some economists to alter their interest rate forecasts with NAB no longer expecting another rate cut until well into 2026.

While the September decision was widely expected, the prospect of fewer interest rate cuts could see buyers take a more cautious approach this spring selling season as affordability pressures remain.

REA Group senior economist Eleanor Creagh said the focus will now be on whether the next quarterly inflation data release backs up the recent CPI jump.

“The bank is remaining cautious and data-dependent as it waits for the September quarter inflation report,” she said. “It will provide them a clearer read on the inflation trajectory before committing to another move.”

Aussies could be waiting months for a cut now, with Mortgage Choice chief executive Anthony Waldron agreeing the bank will be waiting on upcoming data.

“The RBA has been clear that it is taking a longer-term view when making decisions about the cash rate,” he said.

“The decision to keep the cash rate steady was expected given the latest economic data on inflation and unemployment.”

Housing market boosted by previous cuts

The three rate cuts already handed down by the RBA in the last six months has already boosted momentum in the housing market so far this year, Ms Creagh said, while an expansion of the government’s guarantee scheme for first-home buyers will continue to support demand.

“For households, earlier rate cuts this year have lowered mortgage repayments and boosted borrowing capacities and confidence. This has helped to drive a synchronised housing market upswing, with demand building into the spring selling season,” she said.

“It marks a turnaround from the slower conditions observed in late 2024,” she said. “Renewed buyer sentiment, supported by earlier rate cuts is underpinning this recovery.” 

The latest PropTrack Home Price Index found national home prices rose 0.5% in August, the eighth consecutive month of growth.

The uptick pushed home values to a fresh record high just a few weeks ago, a trend Ms Creagh says homeowners can expect to continue.

“While affordability pressures remain, this year’s series of interest rate cuts, improved sentiment, and the October expansion of the Home Guarantee Scheme, are expected to keep upward pressure on home prices in the months ahead,” she said.

Under the expanded Home Guarantee Scheme, the government will guarantee a portion of a first-home buyer’s home loan, so they can purchase a home with a deposit as low as 5% and avoid paying Lenders’ Mortgage Insurance. 

The expansion to the scheme from 1 October has not been without criticism, however.

Lack of income caps for eligible first-home buyers under the arrangement have raised questions over competition for homes will be accelerating, driving prices even higher. First-home buyers with higher incomes could not previously access the scheme.

“Competition in the market is likely to ramp up,” Mr Waldron said.

Adding to competition is a lack of new supply, with the latest PropTrack Listings Report showing both new listings and total listings weaker than a year ago.

National new listings in August were down 12% year-on-year, and the total volume of listings on market was down with 8% fewer properties listed for sale.

“The housing market is poised for further gains throughout spring, though the pace will vary across cities,” Ms Creagh said.

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