As at late 2025, the Australian economy was characterised by modest growth, easing inflation, and relatively restrictive but stable monetary policy settings. The Reserve Bank of Australia has maintained the official cash rate at 3.60%, providing greater certainty around borrowing costs. Forward guidance and market pricing suggest the RBA may keep rates on hold though with some risk of increase through much of 2026. The tell-tale signs of a potential interest rates rise are there with banks having increased fixed rates in recent months. Whether the cash rate actually increases is likely dependant on the level of inflation going forward. This outlook differs from earlier periods when interest rates were higher and market expectations were for relatively rapid and material rate reductions. Economic activity through 2025 has been supported by population growth (net migration) and government spending. In 2026 there is less certainty as the government is under pressure to both reduce spending and migration. If there are any increases to the RBA cash rate and mortgage rates, this is likely to reduce household spending.
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