Markets React To Australian Rate Hold Decision
RBA holds rates at 3.60% as XRE and AU10Y reflect inflation surprises and measured policy stance maintaining growth and market stability.
The Reserve Bank of Australia’s (RBA) decision to maintain the official cash rate at 3.60% in November 2025 reflects the delicate policy tension between moderating headline inflation and sustained domestic demand pressures. This stance confirms the RBA’s commitment to an anti-inflationary bias while assessing the full, lagged impact of previous tightening cycles.
Recent data confirms that underlying price pressures remain intact. Consumer Price Index (CPI) inflation surprised marginally above expectations, settling at 3.3% year-on-year for the September 2025 quarter. Critically, core inflation, measured by the trimmed mean, held steady at 3.0%—the upper bound of the RBA’s target band of 2.0% to 3.0%.
Supporting this price persistence is resilient domestic activity. Household consumption continues to grow above trend, estimated near 3.4% annual growth, supported by rising real wages and accumulated wealth, particularly in property holdings and real estate investment trusts tracked via ASX property trusts (XRE).
Mechanistically, the RBA’s hold preserves optionality and buys time to observe the lagged effects of prior tightening. It avoids a premature rate cut that could swiftly reignite domestic inflation expectations and demand. Conversely, the hold avoids overtightening amid slowing global growth. Business investment is subdued, growing at 2.2% year-on-year (approximate historical rate), reflecting uncertainty in capital-intensive sectors and cautious corporate sentiment amid global supply chain volatility.
Financial markets registered a subtle but clear reaction to the policy decision and the inflation surprise. The Australian 10-year government bond yield (AU10Y) rose slightly to approximately 4.41% (as of November 10, 2025), reflecting that investors are recalibrating rate expectations toward a longer duration of elevated funding costs. Simultaneously, the Australian Dollar to U.S. Dollar exchange rate (AUD/USD) traded near 0.634, reflecting mixed global risk sentiment but signaling policy credibility.
Historical parallels to the 2018–19 tightening period indicate that measured rate holds amid inflation surprises help anchor expectations without materially disrupting growth. The policy stance clearly signals to institutional investors and corporates that capital allocation decisions must factor in continued funding costs near historical averages.
Forward-looking, monitoring quarterly CPI trends, wage growth data, and the AU10Y spreads over the next two quarters will be critical to gauge whether the RBA pivots toward easing in 2026 or maintains the status quo. Structural reforms focusing on labor mobility and productivity improvements may be necessary to expand the economy’s capacity and reduce endemic inflationary pressure over a 12–18 month horizon, offering a medium-term relief path for monetary policy.
