Fin-X Pulse 30th September 2025

The RBA left the cash rate on hold at 3.6% today, as widely expected. Overall, inflation risks had risen since August as the economy had proved more resilient. With new data and forecast updates due, the November meeting will be more important. The market is currently expecting only one more rate cut this cycle.

Key phrases in the governor's statement were:

• "Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and potential supply closer towards balance [...] 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."

• "Data for the June quarter show that private demand is recovering a little more rapidly than expected, taking over from public demand as the driver of growth. In particular, private consumption is picking up as real household incomes rise and measures of financial conditions ease."

• "Uncertainty in the global economy remains elevated. There is a little more clarity on the scope and scale of US tariffs and policy responses in other countries, suggesting that more extreme outcomes are likely to be avoided. Trade policy developments are nevertheless still expected to have an adverse effect on global economic growth over time."

• "There are also uncertainties regarding the lags in the effect of recent monetary policy easing, the balance between aggregate demand and potential supply for goods and services, conditions in the labour market and the outlook for productivity."

• "With signs that private demand is recovering, indications that inflation may be persistent in some areas and labour market conditions overall remaining stable, the Board decided that it was appropriate to maintain the cash rate at its current level at this meeting. Financial conditions have eased since the beginning of the year and this seems to be having some impact, but it will take some time to see the full effects of earlier cash rate reductions. The Board judged that it was appropriate to remain cautious, updating its view of the outlook as the data evolve. The Board remains alert to the heightened level of uncertainty about the outlook. It noted that monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia".

• Today's Chinese PMIs were neutral for the official manufacturing (49.8) and non-manufacturing (50.0) surveys, indicating neither substantial growth nor contraction. The recently renamed RatingDog PMIs (formerly Caixin) were slightly more expansionary, at 51.2 and 52.9, respectively, with a larger set of smaller-sized businesses included.

• S&P/ASX200 8,847 -0.2%, AUDUSD 0.6606 +0.44%, Aus 10yr 4.34% +1bp

Fin-X Wealth View

• The statement highlighted the shift from public to private consumption as the main driver of the economy, as indicated in the recent GDP figures.

• Given the resilience of the economy, the Board is concerned about inflation risks from higher demand, and services inflation has tended to be "stickier" than expected in overseas markets. There is a worry that a large number of households and businesses are still recovering from the post-pandemic inflationary shock.

• Overall, the policy stance is still judged to be slightly restrictive, with the three -0.25% cuts in 2025 still working their way through the system.

• Explaining the current caution, she said that the Board will have more detailed inflation figures, as well as employment updates and another set of revisions at the next meeting in early November.

• The governor was challenged on the fact that previous statements had suggested more cuts were coming, and that it was just a question of timing. Fewer cuts in total now seem more likely.

• The market is pricing a 40% chance of a November cut, with nearly 85% probability of a cut at one of the two meetings before the end of the year, and only one more quarter-point cut in total priced by the end of 2026.

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