Next rate cut expected in February as RBA holds rates steady: CBA Economists

CBA Head of Australian Economics Belinda Allen published a note on the September RBA rate decision. Below is an overview of the analysis.

Inflation proves stickier than expected

The RBA kept the cash rate on hold at 3.60 per cent in September, as widely expected. But the tone of the statement was more cautious than anticipated, reflecting stronger inflation data and signs of a pick-up in consumer spending.

The decision was unanimous, and economists at CBA now expect the next rate cut to come in February 2026 - later than previously forecast.

“Inflation came in hotter than expected in August, and the economy is showing signs of a cyclical upswing,” said Belinda Allen, Head of Australian Economics.

“This has led us to push back our forecast for the next rate cut. We now expect the RBA to stay on hold for the rest of 2025.”

What is ‘trimmed mean’ inflation and why is it important?

Trimmed mean inflation is a way of measuring price changes that removes the most extreme movements, both high and low, to give a clearer picture of underlying inflation trends. It’s the RBA’s preferred measure for tracking inflation.

CBA economists have upgraded their trimmed mean forecast for the September quarter to 0.8 per cent, keeping the annual rate steady at 2.7 per cent. Market services inflation, which includes things like healthcare and education, is expected to be particularly strong.

What’s next?

The RBA is expected to hold rates steady at its remaining meetings this year. CBA economists say the central bank will want to see more evidence that inflation is heading towards its 2.5 per cent target before cutting rates again.

October’s CPI data will be a key input for the RBA’s November meeting, which will include a refresh of its economic forecasts. 

See the full report here.