RBA interest rates: Borrower hopes pinned on Michele Bullock’s comments as signs of relief fade

Borrowers will get a signal on whether Australia’s recent inflation bounce has blown up the chance of any further rate cuts when the Reserve Bank meets on Tuesday.

Governor Michele Bullock’s board is widely expected to keep the official cash rate on hold at 3.6 per cent.

Hopes for a fourth cut at the Melbourne Cup Day meeting were slashed last week after core inflation — the RBA’s preferred measure of prices as it strips out volatility — jumped to 3 per cent.

Financial markets remain optimistic for one more cut by the middle of 2026. Yet a handful of economists have warned the RBA’s next move may be upwards, though perhaps not for some months.

Ms Bullock will need to give a steer which direction she is leaning.

Judo Bank’s Warren Hogan on Monday warned inflation may worsen further.

“Economic data from the past three to six months indicates momentum could be building faster than previously expected,” he said.

“Factors include unexpected consumer spending growth in (the June quarter), improved business profitability and trading conditions, rising dwelling prices, and recent inflation increases, all suggesting a cyclical rebound may be underway.

“This could also imply an increased likelihood of rate hikes in the short term.”

Commonwealth Bank also dropped predictions of any further rate cuts last week — with inflation on the rise and demand on an upswing.

Also on Monday new data from the Australian Bureau of Statistics showed household spending grew a modest 0.2 per cent in September.

Spending on essentials such as food, health and petrol drove the increase.

Yet discretionary items including clothing and restaurants both went backwards.

EY chief economist Cherelle Murphy said spending over the past 12 months had grown at the second-fastest rate since November 2023.

“Household consumption has picked up a little due to higher real incomes, lower interest rates, and the wealth effect from higher house prices,” she said.

“Given the labour market remains a bit tight, and inflation increased in the September quarter, the Reserve Bank will be keen to assess whether stronger household consumption is translating to inflation.

“The lagged impact of monetary policy means that the full effect of the Reserve Bank’s 75 basis points of rate cuts this year is yet to be seen.”

Ms Murphy expected rate cuts would resume next year.

AMP’s My Bui was also optimistic about the chances of further rate cuts, adding that spending was improving but “fragile”.

“Household spending is still better than where it was last year, but today’s data shows that the recovery in household sector remains very fragile, which is consistent with the recent stagnation in consumer confidence,” she said.

Ms Bui said the labour market was weakening — with a fall in job advertisements — even as inflation remained sticky.

“While it’s likely that the RBA will hold rates steady tomorrow in the November meeting, given that inflation readings have been hotter than expected; the future direction for cash rates next year is a bit more uncertain.

“We continue to see household spending recovery momentum relatively modest, and coupled with a rising unemployment rate, it is hard to see any further spike in demand-led inflation.”