The Reserve Bank of Australia (RBA) has decided to keep interest rates steady at 3.6%, reflecting signs that inflation may be higher than previously forecasted, which dampens expectations for future rate cuts in 2025.

Recent strong CPI readings for July and August, including a 3% inflation rate driven mainly by electricity costs, suggest inflation may remain elevated in the third quarter, reinforcing the decision to hold rates.

The RBA's August CPI report showed core inflation at 2.6%, with housing costs up 4.5%, food and beverages up 3%, and alcohol and tobacco up 6%, indicating persistent inflation pressures.

Governor Michele Bullock emphasized that the bank’s focus remains on maintaining low and stable inflation, and highlighted that the effects of previous rate cuts are still unfolding in the economy.

Market expectations have shifted, with a significantly lower probability of a rate cut in the near future, and investors are closely watching the RBA's language and Bullock’s tone for clues on future policy moves.

Australia’s domestic economy is showing signs of recovery, driven by increased consumer spending, rising household incomes, and a strengthening housing market, which may help slow inflation further.

Financial conditions have eased since earlier rate cuts, with private demand growing faster than expected and signs of a resilient economy supporting ongoing growth.

Experts advise borrowers not to assume a rate cut is imminent and to consider refinancing options or government incentives, such as the expanded Home Guarantee Scheme, to assist first home buyers.

U.S. investors are monitoring Federal Reserve officials’ remarks for signals on economic outlook, with a high probability of a 25-basis-point rate cut at the upcoming Fed meeting, influencing global markets.

Major market movements include a slight rise in US stock indices and gold reaching a record high, while crude oil prices have fallen sharply due to OPEC+ output hikes.

The Australian dollar's movement is sensitive to the RBA’s tone and guidance, especially amid recent volatility in building approvals and external shocks like global commodity prices.

Global uncertainties, including US tariffs, geopolitical risks, and trade policies, pose risks to Australia's economic outlook, potentially affecting demand and labor market conditions.