The Reserve Bank of Australia kept interest rates unchanged and raised inflation expectations

The Reserve Bank of Australia expects core inflation to remain above its target range until mid-2026, as consumer demand and house prices grow faster than expected, limiting the scope for further rate cuts. The Reserve Bank of Australia on Tuesday left its cash rate unchanged at 3.60% as expected, having cut rates three times this year in February, May and August. In a statement, the Reserve Bank of Australia said recent data, including stronger economic growth, stubborn inflation and a still tight labour market, suggested that the economy's potential capacity was more limited than previously expected. "These indicators present a complex picture of financial conditions, consistent with the judgment that policy is currently close to neutral valuations. In fact, the cash rate is already below some models' core estimates of the neutral rate. "The bank now expects its closely watched revised average core inflation rate to accelerate to 3.2 per cent by the end of the year, up from the current 3 per cent and up sharply from its previous forecast of 2.6 per cent over the next few years. Core inflation is not expected to return to its target range of 2-3 per cent until the second half of 2026 and fall to 2.6 per cent until the end of 2027.