The Reserve Bank of Australia (RBA) is widely expected to keep the Cash Rate unchanged at 3.6% tomorrow. We won’t get the economic projections at this meeting, so the focus will be on the statement and the press conference. The expectations are for the central bank to remain cautious and acknowledge the risks around inflation, but a hawkish shift in stance is a risk.
STATEMENT
The statement will be scanned for any hawkish shift in tone. The central bank has been cautious about the recent rise in inflation with RBA’s Hauser saying that two thirds in Q3 CPI was probably noise. If they sound more concerned about inflation, then that would tilt it to a more hawkish tone. If they outright say that they don’t see any further rate reduction or that monetary policy is no longer seen as restrictive, that would also be a hawkish shift.
PRESS CONFERENCE
RBA Governor Bullock spoke to the Senate Economics Legislation Committee last week. The most important line from her speech was “if inflationary pressures were more permanent, it would have implications for the future path of monetary policy”. This clearly suggests that if inflation continues to surprise to the upside, the RBA would have to follow through with a rate hike.
Bullock has also reiterated her view that part of the recent rise in inflation was temporary and that on a quarterly basis it would start to ease. Any clear hawkish shift in tone would confirm the central bank’s openness to raise interest rates in case inflation data surprises to the upside.
That might see traders bringing rate hike expectations forward. The November CPI is going to be released January 7, 2026 while the Q4 CPI is scheduled for January 28, 2026. The next RBA meeting will be on February 4, 2026.
MARKET PRICING
- December cut: 0% probability
- June 2026 rate hike: 50% probability
- August 2026 rate hike: 100% probability
- Total 2026 tightening: 35 bps
