The Reserve Bank of Australia (RBA) has delivered welcome news to mortgage holders, deciding to keep the official cash rate on hold and signalling that further increases are unlikely for the foreseeable future.
RBA's December Decision and Forward Guidance
At its final meeting for 2025, the RBA Board opted to maintain the current cash rate target at 4.35 per cent. This decision, made on Tuesday, December 30, 2025, marks the continuation of a holding pattern that has been in place for several months. More significantly, the central bank's accompanying statement and economic projections strongly indicate that interest rate hikes are off the table until at least 2026.
The bank's updated forecasts show that inflation is gradually returning to its target band, albeit at a slower pace than previously hoped. This gradual moderation has given the Board enough confidence to rule out further tightening of monetary policy in the near term. The RBA's stance is now firmly in a holding pattern, focused on observing how the existing rate settings continue to work through the economy.
Economic Outlook and Inflation Trends
The central bank's assessment points to a delicate balancing act. While global economic uncertainties persist, domestic conditions show signs of easing price pressures. The RBA noted that the cumulative effect of previous rate rises is still flowing through the system, helping to constrain demand and bring inflation down.
Key factors in the outlook include:
- Inflation: Consumer price growth is expected to continue its slow descent towards the RBA's 2-3 per cent target range.
- Growth: Economic activity is forecast to remain subdued, with household spending particularly weak as Australians adjust to higher loan repayments.
- Labour Market: The unemployment rate is predicted to rise slightly from its current low levels, easing wage pressure concerns.
This combination of factors has created a window where the Board believes it can afford to be patient, avoiding the need for additional rate increases that could risk pushing the economy into a sharper downturn.
What This Means for Australian Households and Businesses
For millions of Australian homeowners with variable-rate mortgages, the RBA's announcement provides a much-needed period of certainty. After a rapid series of hikes that began in 2022, the extended pause and clear guidance mean budgets will not be squeezed further by rising repayments in the coming year.
This stability is expected to have several flow-on effects:
Consumer confidence may receive a modest boost, knowing the worst of the rate climb is likely over. Businesses planning investments can proceed with greater certainty about their borrowing costs. The property market, which has shown resilience in parts, may also find a firmer footing without the threat of imminent rate rises.
However, the RBA also cautioned that rate cuts are not imminent. Governor Michele Bullock emphasised that the Board's priority remains returning inflation to target, and rates will need to stay at their current restrictive level for some time to ensure this outcome. The timeline for any potential relief in the form of rate reductions remains uncertain and is highly data-dependent.
In summary, the RBA has drawn a clear line in the sand: the tightening cycle is complete, and Australians can expect the cash rate to remain at 4.35 per cent throughout 2025. The focus now shifts to how long the economy will need to endure these restrictive settings before the conversation can turn towards easing.
