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Hedge Clippings | Friday, 03 October 2025
At its board meeting this week, the RBA kept the cash rate steady at 3.60 per cent - exactly as expected. In fact, so widely anticipated was the decision that it barely rated more than a passing mention in the media. What caught the RBA's attention was last week's partial monthly inflation number for August, which ticked up to 3.0 per cent - right at the top of their 2-3% target range. That result raises the prospect that the outcome for the full September quarter CPI, due out on October 29 (just in time for the Cup Day meeting), could spoil the party for homeowners still hoping for relief.
Governor Michele Bullock avoided conceding that inflation is on the rise, instead noting more cautiously that "the decline in underlying inflation has slowed." In doing so, she sidestepped any suggestion that the board had jumped the gun by cutting rates in August. She did, however, stress that outside the strong and steady labour market, the broader outlook remains uncertain, but that the RBA remains well placed to respond decisively to local and global developments as needed - giving her cover to move rates in either direction.
That said, if the RBA's next move is up, it will certainly make headlines - and dent the wallets of mortgage holders who have only just banked some repayment relief. Our take is that reversing the direction of rates after three cuts is the last thing the RBA will want to do, so if the September quarter CPI does disappoint, they'll likely hold them steady for longer. Looking ahead, we don't see inflation falling a great deal further, so the best borrowers can realistically hope for is one more cut before Christmas, and if they're very lucky, one more after that.
Adding to Bullock's sense of uncertainty is the outlook offshore. In the US, Donald Trump's tariff policies continue to fuel concerns about inflation, but that's now being compounded by the impact of yet another US government shutdown - with no one quite sure how long this one will drag on. History suggests they're getting longer: Trump's previous effort in his first term lasted 35 days, Clinton's in 1995-96 ran 21 days, and Obama's in 2013 went for 16 days. Go back further, and the tally is just as messy: Reagan presided over eight shutdowns for a total of 14 days, Carter had five for 56, Clinton had two for 26, and this is Trump's fourth - already 40 days in total, and counting.
Beyond the trivia, and the cost to jobs and the economy, the potential is that Jerome Powell and his colleagues at the Fed risk being left without the economic data they need to frame their interest rate decisions. And if central banks are flying blind, that's when investors should fasten their seatbelts.
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