Understanding the RBA's decision to hold the cash rate at 3.6% for its last meeting of 2025

The Reserve Bank of Australia (RBA) has announced its decision to keep the cash rate steady in December for its final meeting of 2025.

This move has sparked interest among investors, homeowners, and economists alike. Understanding why the RBA chose to hold the rate and what it means for the economy can help individuals and businesses make informed financial decisions in the coming months.

What the Cash Rate Means for the Economy

The cash rate is the interest rate set by the RBA that influences borrowing costs across the economy. When the RBA adjusts this rate, it affects mortgage rates, business loans, and savings returns. A higher cash rate typically cools inflation by making borrowing more expensive, while a lower rate encourages spending and investment.

By holding the cash rate steady in December 2025, the RBA signals that it believes the current economic conditions do not require immediate intervention. This decision reflects a balance between supporting growth and keeping inflation in check.

Reasons Behind the RBA’s Decision to Hold

Several factors contributed to the RBA’s choice to maintain the cash rate:

• Inflation Trends

Inflation has moderated in recent months, moving closer to the RBA’s target range of 2-3%. This easing reduces the urgency to raise rates further.

• Economic Growth

Australia’s economy continues to grow at a steady pace, supported by strong consumer spending and a resilient job market. The RBA likely sees no immediate threat of overheating.

• Global Uncertainty

Ongoing global economic challenges, including supply chain disruptions and geopolitical tensions, create uncertainty. The RBA may prefer to wait and assess how these factors evolve before making changes.

• Housing Market Stability

The housing market has shown signs of cooling after previous rate hikes. Holding the cash rate helps avoid sudden shocks to borrowers and the property sector.

Impact on Borrowers and Savers

For homeowners with variable-rate mortgages, the RBA’s hold means their interest rates are unlikely to rise in the short term. This provides some relief for those managing monthly repayments. However, fixed-rate borrowers may not see immediate changes until their loan terms expire.

Savers may find that returns on term deposits and savings accounts remain modest, as banks typically adjust these rates in line with the cash rate. Those looking to invest might consider alternative options to achieve better yields.

What to Watch Next

While the RBA has paused rate changes for now, several indicators will influence future decisions:

• Inflation Data

If inflation starts rising again, the RBA may resume rate hikes to prevent the economy from overheating.

• Employment Figures

A weakening job market could prompt the RBA to lower rates to stimulate growth.

• Global Economic Developments

Changes in international trade, commodity prices, or geopolitical events could affect Australia’s economic outlook.

If you’d like to understand what a steady cash rate means for your loan or future plans,

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Please get in touch and we can set up a call to understand what the new year ahead looks like for you!

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