RBA Set to Hold Rates at 4.35% as Inflation Cools, Reducing Hike Pressure

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RBA Set to Hold Rates at 4.35% as Inflation Cools, Reducing Hike Pressure

The Reserve Bank of Australia (RBA) is widely expected to keep the official cash rate at 4.35% at its upcoming meeting, as softer-than-expected inflation data reduces the need for further tightening.

Why the RBA is likely to hold rates

Recent monthly CPI figures, released by the Australian Bureau of Statistics, showed inflation easing more than forecast, with the annual rate falling to 3.4% in January, down from 3.6% in December. This moderation, particularly in underlying trimmed mean inflation, has led financial markets to scale back expectations of another hike. As of late February, futures pricing implied a less than 10% chance of a rate rise at the March meeting, compared with nearly 30% a month earlier.

The RBA’s own forecasts, updated in February, project inflation to return to the 2–3% target band by late 2025, but the board has stressed that it remains vigilant to upside risks, including services inflation and wages growth.

Market and economist expectations

Most major banks, including Commonwealth Bank, Westpac, and ANZ, now expect the cash rate to remain on hold through the first half of 2025, with the first cut possible in September. However, a minority of economists argue that if inflation continues to cool faster than anticipated, the RBA could be forced to act sooner to avoid an unnecessarily tight policy stance.

The RBA’s February meeting minutes noted that “members agreed that further increases in interest rates might still be needed” but also acknowledged that “the path of inflation had been revised down.” This balanced language suggests the board is comfortable waiting for more data before making a definitive move.

Implications for borrowers and the housing market

For mortgage holders, a hold means the average variable rate remains around 6.3%, keeping monthly repayments elevated. According to RateCity, a borrower with a $750,000 loan has seen annual repayments rise by roughly $15,000 since the tightening cycle began in May 2022. A sustained pause offers some relief, but the prospect of cuts remains uncertain, leaving many households in a wait-and-see mode.

The housing market has shown resilience, with national home values rising 0.4% in February, according to CoreLogic, driven by strong demand in Perth, Adelaide, and Brisbane. However, Sydney and Melbourne remain subdued, reflecting affordability constraints and higher supply.

Conclusion

With inflation moderating and the labor market gradually softening, the RBA appears poised to hold the cash rate at 4.35% for a fifth consecutive meeting. The board’s data-dependent approach means that any unexpected upside surprise in inflation could still prompt a hike, but the current trend suggests the tightening cycle has likely peaked. Borrowers and businesses will be watching closely for signals on the timing of potential rate cuts later in the year.

FAQs

Q1: What is the current RBA cash rate?
As of March 2025, the RBA cash rate stands at 4.35%, a level maintained since November 2023.

Q2: When will the RBA next decide on interest rates?
The RBA’s next monetary policy decision is scheduled for March 18, 2025, followed by a meeting in May. The board meets eight times a year.

Q3: How does the RBA’s decision affect mortgage rates?
Changes to the cash rate directly influence variable mortgage rates. A hold means existing variable rates remain unchanged, while future cuts would lower monthly repayments for borrowers.

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