The RBA announced its seventh decision for 2025, leaving the official cash rate at 3.60%.
Markets reversed their earlier expectations of an interest rate cut and focused more on inflation than the state of the labour market. There is also a watch on improving business confidence, exchange rates as related factors.
The "Direction for Local Interest Rates" continues to show that market expectations for further rate drops are diminishing. However, as we know, things can change quickly.
Australia’s inflation rose sharply in Q3 2025, with the annual rate climbing to 3.2% (from 2.1%), exceeding both forecasts and the RBA’s 2–3% target. The RBA’s preferred trimmed mean inflation also increased to 3.0% (from 2.7%), while producer prices rose to 1.0% (from 0.7%). These stronger-than-expected figures pushed 10-year bond yields back up (see below) and reduced the likelihood of near-term rate cuts.
Not an ideal time, with inflation higher than forecast, and the labour market starting to show signs of weakness. Markets like Canada and New Zealand have been aggressive in stimulating to protect employment, while our market is taking a more cautious wait and see approach. Time will tell which approach is the most balanced.
RBA Positioning
The message from the Governor recently shows the desire to watch and see if trends stick:
“Monthly numbers can be volatile and the jump up in the unemployment rate was a bit of a surprise that it jumped so much. But monthly numbers can be volatile. And we do know sometimes that they jump up and then they jump back down again. So I don’t want to leap at a single number"
The Australian equity market was weaker again over the last month, in the short term, hurt by reduced expectations for interest rate cuts. Structurally, the data below shows some trends developing, and our index does have a low weighting in high-growth tech companies. With our market tied to a reliance on resources and the financial sector, there is a massive lag compared to other markets that are crying out for signs of innovation. The figures below can be misleading and are sweeping, but they don't lie either.
A mixed performance on global affairs, but easing interest rates were well received by markets. The 5-Year performance becomes a good measurement, as when it aligns in developed economies, it shows some measure of stability.
|
Country |
Mark |
1 Mth |
6 Mth |
1 Yr |
5 Yr |
|
Australia |
All Ords | -1.5% | 9.2% | 8.6% | 43.3% |
|
Germany |
Dax | -1.7% | 2.6% | 25.1% | 91.9% |
|
Japan |
Nikkei | 14.5% | 42.5% | 36.2% |
115.4% |
|
UK |
FTSE |
2.3% | 13.3% | 18.7% | 64.4% |
|
USA |
Dow Jones |
2.2% |
15.2% |
13.8% | 67.9% |
|
Average |
3.2% | 16.6% | 20.5% | 76.6% |
Japan reclaimed old ground, with growth primarily driven by the renewable energy sector, particularly geothermal stocks, despite a more subdued performance for traditional companies. Interestingly, and conversely global markets are concerned about its macroecomonics (debt etc) and their currency weakened.
The US market continued its growth, gobbling up the rate cut though noting the central bank comments that further rate drops are far from guaranteed.
There was a continued change regarding future rate trends with the market continuing to reduce expectations of the severity and timing of rate cuts.
As a result, the ASX Cash Rate graph flattens out further, especially when compared to the previous period.
As a result, government bonds sold off sharply after the higher inflation result - sending the 2 & 3-year yield up over the month.
The story of central banks worldwide remains tilted toward easing, led by the US this month. However, the pace and certainty of future cuts have decreased, as inflation and market volatility feed uncertainty.
New Zealand's central bank cut its Official Cash Rate by 50 pts to 2.50% in October, and is an example of a fragile economy with higher than desired inflation and weak growth.
The U.S. Federal Reserve cut rates by 25 points, reducing the federal funds target range to 3.75% – 4.00%. Chairman Powell probably summed up the global view that “there is no risk-free path” for them to take with the labour market weaker, but prices still rising. The next meeting is mid-December, and the world will be watching for guidance.
In the UK, The Bank of England held rates at its September meeting at 4.0%. The majority of policymakers are taking a wait-and-see approach. This pause reflects heightened concern about persistent inflation pressures and uncertainty regarding the economic outlook, with future cuts likely but at a slower pace than first anticipated. The next meeting in November will be one to watch.
The Bank of Canada has cut its rate by 25 points to 2.25%, also signaling that it has done all it can for now. US Tariffs are having a major impact on their economy.
Before posting any changes today, we compare central bank cash rates and their longer-term 10-year bond yields.
Relative symmetry across world rates, with nearly every long-term rate falling as Canada, US, NZ also posting reductions to their cash rates. This kept the combined spread at 56 basis points - with China as an outlier now.
The falling yields on the long term rates generally make it a little easier to make downward adjustments.
|
Country |
Cash Rate | 10 Year | Spread |
|
Australia
|
3.60% | 4.31% | 0.71% |
|
Canada
|
2.25% | 3.12% | 0.87% |
|
China
|
3.00% | 1.76% | -1.24% |
| Germany | 2.15% | 2.62% | 0.47% |
| India | 5.50% | 6.53% | 1.03% |
| Japan | 0.50% | 1.66% | 1.16% |
| New Zealand | 2.50% | 4.09% | 1.59% |
| UK | 4.00% | 4.40% | 0.40% |
| USA | 4.00% | 4.10% | 0.10% |
| Average | 3.06% | 3.62% | 0.56% |
Australia’s Money Market ended fairly neutral but that doesn't tell the story. 10-year money fell sharply on the back of expectations of rate cuts, but the inflation result led a 20 point spike to close out the period.
Again, the relative attractiveness of our bond yields means we can keep borrowing for a while longer. The rise in mid-2 and mid-3 year yields shows that the yield curve is heading to normal.
The latest monthly residential property results from Cotality (see table below) rose by 1.1% overall in October overall. As expected in Spring, there is more supply, but overall this remains lower than longer-term averages.
| Location | Month | Quarter | Annual |
|
Adelaide
|
1.4% |
3.2% |
6.7% |
|
Brisbane
|
1.8% |
4.9% |
10.8% |
|
Melbourne
|
0.9% |
1.6% |
3.3% |
|
Sydney
|
0.7% |
2.3% |
4.0% |
|
Perth
|
1.9% |
5.4% |
9.4% |
|
All Capitals
|
1.1% |
2.3% |
5.6% |
|
All Regionals
|
1.0% |
1.8% |
7.5% |
Supply levels are a major factor in the fastest growth rate since mid 2023. There are early signs of momentum back to Melbourne as well. Anecdotally, investors from other states are looking at Melbourne as "cheap".
Commercial & Industrial
Confidence continues to return, albeit with sellers adjusting pricing expectations. Tenants are taking less space, but wanting much better quality stock. Sub-leasing activity is also down as well.
Sydney is an interesting case study with their new Metro system coming online (it is amazing). As with most infrastructure investment, investor interest spikes early. For example, markets along the Metro network saw accelerated rental rate and capital value growth up to five years before stations were delivered.
Though when the accelerated foot traffic arrives, sentiment and business energy starts to flow.
According to NAB Research, Australian business conditions for SME business conditions rose 7pts in Q3. The was driven by gains in trading conditions and profitability, along with a more moderate improvement in employment. Conditions now sit in positive territory for the first time in more than a year, though both confidence and conditions remain below their long run averages.
In this cycle though, there is a broadening gap in conditions and confidence between smaller SME and larger ones. The improving trend across Australia's service economy continues for property, finance and business services, though at the expense of wholesale and retail industries.
Overall, business confidence rose for a fourth consecutive quarter to be its highest since 2022. Victoria actually caught up ground watch with 'cheap' property prices relative to other states.
The Australian dollar was stronger against most economies, our higher cash rate now at a premium to many other comparable economies that have gone through significant monetary policy easing.
For the first time in a while, the yearly trend is closer to neutral - this has clawed back significant ground from where it was.
External factors such as US-China trade tensions and global risk sentiment remain a factor for our dollar, especially given the relationship with broader economic performance in China. Fear and optimism in equal measure.
| Country | Type | $1 AUD Buys | Period Change | Year Change |
| Canada | Dollar | 0.92 | 0.4% | 0.2% |
| China | Yuan | 4.67 | -0.3% | -0.4% |
| Eurozone | Euro | 0.57 | 2.0% | -6.3% |
| Japan | Yen | 100.7 | 2.9% | 0.3% |
| NZ | Dollar | 1.11 | 2.4% | 3.9% |
| UK | Dollar | 0.50 | 1.8% | -1.8% |
| US | Dollar | 0.66 | -0.1% | -0.5% |
2025 RBA Policy Announcement Dates
We hope you enjoyed our seventh Economy & Property Insights post for 2025, thank you for reading.
The last RBA Monetary Policy Announcement for 2025 will be made at 2.30pm on Tuesday 9 December.
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