FX.co ★ Australia Holds Cash Rate, Flags Inflation Risks

In its concluding session of 2025, the Reserve Bank of Australia unanimously decided to keep its cash rate steady at 3.6%, as anticipated by the market, thus sustaining borrowing costs at their lowest since April 2023. The central bank observed that inflation has significantly decreased from its peak in 2022, yet it has shown signs of recently rising. Although the increase can partly be attributed to temporary factors, initial indicators suggest the emergence of more widespread and potentially enduring price pressures. The labor market was characterized as "slightly tight," with an increase in unemployment and a slowdown in job growth, though underutilization remains low. Many businesses continue to face difficulties in finding suitable workers. The board acknowledged uncertainties surrounding both domestic and global economic outlooks, including the current policy's degree of restrictiveness. As private-sector momentum surpasses expectations, capacity constraints could become more pronounced should growth persist. Consequently, policymakers deemed it wise to adopt a cautious approach and re-evaluate policy based on new data.