RBA interest rates: Reserve Bank may have underestimated Australia’s recoveryMatt MckenzieThe NightlyTue, 14 October 2025 9:55AMCommentsCommentsEmail Matt Mckenzie
The Reserve Bank has admitted it may have underestimated the economy’s strength amid recent signs inflation is running hotter than expected.
The central bank’s board hit pause earlier this month by keeping the official interest rate steady at 3.6 per cent while signalling further cuts may be delayed or ditched depending on upcoming data.
It followed recent inflation figures showing cost pressure remains in home building and across service industries, with core inflation — which strips out volatility — running at 2.6 per cent in the year to August.
Financial markets judge the chances of a move next month as a coin toss.
While the RBA has not yet hit the panic button, minutes from the September board meeting suggest there’s concern that the inflation fight may not be over.
A stable jobs market and increasing prices “could imply that the staff’s assumption” on the balance between spending and production in Australia’s economy “was incorrect”.
Also worrying the RBA’s board was international evidence that services inflation is staying elevated.
Services industries are those that do not produce physical goods and include sectors like health, education and tech.
The good news was that the economy was bouncing back faster than the RBA had forecast.
“Growth in household consumption in the June quarter had been stronger than expected,” the minutes said, while noting that some of the boost may have been driven by temporary factors.
“The size of the increase in the June quarter and the fact that consumption had picked up across a wide range of categories over the preceding year suggested that the recovery . . . was likely to persist.
“Real disposable income had risen strongly over the preceding year, supported by ongoing strength in employment, growth in real wages and the Stage 3 tax cuts.
“In per capita terms, real disposable income had been back above its pre-pandemic level since late 2024.”
The bank’s next move, on Melbourne Cup day, will be guided by inflation figures due later this month.
More to come
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