The Reserve Bank of Australia (RBA) Board increased the cash rate by 0.25% to 2.60% at its October meeting.
The RBA maintained that global factors explain much of the inflation impact locally, but that strong domestic demand is playing its role as our economy struggles to meet this demand. The Bank believes CPI inflation will be around 7.75% over 2022, before falling to a little above 4% over 2023 and around 3% over 2024. The Board will continue to pay close attention to both labour costs and the price-setting behaviour of firms for the period ahead in light of these inflation forecasts.
Outside of that, the Board is focused on:
The slowdown in rate rises gives the RBA added flexibility to potentially elongate their rate hiking cycle and/or add some pauses to their rate hiking cycle in the period ahead, if they prefer to wait for more data to come through. In saying that, if they proceed with two more hikes to round out the calendar year, this will take the cash rate to a little over 3% which might be restrictive enough depending on prevailing economic conditions. If this turns out to be correct, the critical question then becomes, how long rates need to remain at these restrictive levels to bring inflation closer to the RBA’s comfort levels.
Post the announcement, Australian government bond yields fell (prices higher), AUD/USD bounced before falling away again, and Australian equities were higher, with their best day in 2 years.
Global markets delivered mixed but generally resilient outcomes over the December quarter, as investors navigated shifting expectations for interest rates, valuation pressures and ongoing geopolitical uncertainty. Early volatility gave way to steadier conditions toward year end, supported by the US Federal Reserve’s December rate cut and continued confidence in corporate earnings. Artificial intelligence remained a key structural theme, while strength in defensive sectors, commodities, and gold helped balance a more selective risk appetite.
2025 unfolded against a backdrop of heightened geopolitical tensions, shifting central bank policy, and uneven global growth. Markets began the year cautiously, with Donald Trump’s return to the US presidency renewing tariff uncertainty and contributing to early volatility as investors assessed potential impacts on trade, inflation and corporate earnings. Confidence gradually improved as inflation moderated across major economies and expectations for steadier policy settings emerged. A powerful theme in markets was the accelerated investment in artificial intelligence, which became a central driver of global market leadership as the year progressed.
Global markets surged in the September quarter of 2025 driven by optimism around monetary easing and A.I. innovation alleviating earlier concerns over tariffs and slowing growth. Global equities powered higher on a wave of strong earnings, a long-anticipated US rate cut, and continued enthusiasm for A.I. Commodity and credit markets also strengthened, while volatility briefly flared around policy uncertainty and fiscal stress, particularly in Europe, amid a looming US government shutdown.