Statement on Monetary Policy – November 2025Overview

Recent data suggest more inflationary pressure in the Australian economy than had been expected in the August Statement, and the outlook for underlying inflation has been revised slightly higher. A recovery in private demand has continued, and Australian GDP growth has evolved broadly as expected in August. The unemployment rate has picked up by a little more than expected, but leading indicators point to a broadly stable outlook and we assess that there is still some tightness in the labour market.

GDP growth in Australia is expected to pick-up a little further to around its potential growth rate and broadly remain there over the forecast period. Risks to the outlook for domestic activity and inflation are judged to be balanced.

Global economic activity has been more resilient than expected but downside risks to global growth remain. Global inflation is expected to moderate, but there are risks on both sides.

The Monetary Policy Board judged that it was appropriate to leave the cash rate target unchanged at 3.60 per cent, and remains cautious about the outlook given recent evidence of more persistent inflation in the economy. However, there are a number of uncertainties affecting the economic outlook, and the Board will be attentive to the data and the evolving risks.

Inflation in the Australian economy has picked up recently.

Headline inflation increased to 3.2 per cent in year-ended terms in the September quarter, which was significantly stronger than expected at the time of the August Statement. The increase was driven by higher electricity prices following the partial unwinding of household rebates, price increases in more volatile items (like fuel) and higher underlying inflation.

Underlying inflation picked up in the September quarter by more than was forecast in August, reflecting larger-than-expected price increases in several areas, including in building new homes and in the services provided by firms. The year-ended rate of underlying inflation increased to 3 per cent. While part of the increase in underlying inflation is expected to be temporary, taken together with broader indicators of capacity utilisation in the economy, the data suggest there is a little more inflationary pressure in the economy than previously thought.

The unemployment rate has increased a little, but a range of indicators suggest there is still some tightness in the labour market.

Labour market conditions eased recently by a little more than expected. In particular, the unemployment rate increased and overall employment growth slowed by a bit more than expected in the August Statement.

Nonetheless, a range of indicators continue to suggest that some tightness remains in the labour market. For example, the low underemployment rate, the above-average share of firms experiencing difficulty finding workers, an elevated ratio of vacancies to unemployed workers and still high growth in unit labour costs all support this assessment.

More broadly, recent data suggest there is slightly more capacity pressure in the economy than previously assessed. A pick-up in survey measures of firms’ capacity utilisation, the recent strength in underlying inflation and continued evidence of some tightness in the labour market point to the possibility that there is currently a little more capacity pressure in the economy than we thought in August. Given signs that the labour market has eased a little recently, that implies that the economy was somewhat further from balance in August than we thought at the time.

The recovery in Australian GDP growth has continued broadly as expected.

GDP growth in the June quarter was broadly as expected. This was led by private demand growth, in particular household consumption, while growth in public demand was weaker than anticipated. Partial data for the September quarter point to continued growth in household consumption, tracking in line with the August forecast.

Global economic activity has been more resilient than expected.

Global economic activity over the first half of this year was more resilient to trade developments than expected. This was supported by an adjustment in global trade flows and the front-loading of some trade activity in anticipation of US tariffs. There is no evidence yet of a material impact on economic activity in Australia and bulk commodity prices have increased a little in recent months. However, downside risks to global activity remain, reflecting persistent uncertainty around the configuration and impact of trade and other economic policies. Risk premia in global markets remain very low, with equity prices rising further and corporate bond spreads remaining tight. If key risks were to materialise or be reassessed, this could prompt a sharp tightening in global financial conditions.

GDP growth in Australia’s major trading partners is expected to slow into 2026 as higher tariffs weigh on global demand, but the likelihood of a severe downside scenario has diminished compared with earlier in the year. The forecasts continue to embody a slowing in quarterly growth in the United States in the near term, and relatively resilient growth in China. The impact on Australia of a slowing global economy is expected to be moderate, with global trade developments judged to be mildly disinflationary.

Some capacity pressures are expected to remain in the Australian economy over the forecast period.

The lags in the transmission of monetary policy mean the full impact on the economy of reducing the cash rate over the course of this year is yet to be seen. Reductions in the cash rate in recent months have been passed through to deposit and lending rates, and financial conditions in Australia have eased with funding readily available at favourable spreads to a wide range of household and business borrowers. Housing credit growth and housing market activity have picked up, within the range of previous phases of easing monetary policy, while some indicators point towards more restrictiveness, such as elevated mortgage repayments. As such, indicators paint a mixed picture of financial conditions, consistent with policy now being closer to neutral estimates. The Australian dollar has appreciated slightly on a trade-weighted basis since the August Statement.

GDP growth is forecast to stabilise around the economy’s potential growth rate. The boost to growth from the easing in financial conditions is expected to offset the diminishing boost to growth from the earlier rise in real incomes and the expected moderation in public demand growth.

Assuming the cash rate follows the market path, capacity pressures are expected to remain and be slightly more pronounced over the forecast period than assessed at the time of the August forecasts. The below-trend growth and gradual easing in the labour market over the past three years has brought demand and supply in the economy closer to balance, but capacity pressures are not expected to ease much further.

Labour market conditions are also not expected to ease much from here. The unemployment rate is forecast to increase slightly in the near term and then stabilise at a marginally higher level than was expected in August.

The outlook for inflation has been revised slightly higher.

Underlying inflation is expected to be above the 2–3 per cent range until the second half of 2026, largely reflecting the strong September quarter outcome. Were the cash rate to follow the market path as is assumed in the forecasts, the central forecast of underlying inflation would be expected to settle a little above the midpoint of the range by the end of 2027. Headline inflation is expected to remain above 3 per cent for much of 2026, before returning to be a little above the midpoint of the target range.

The Monetary Policy Board decided to leave the cash rate target unchanged.

The Board is focused on its mandate to deliver price stability and full employment. At this meeting, the Board judged that it was appropriate to leave the cash rate target unchanged at 3.60 per cent, given recent data suggest that some inflationary pressure may remain in the economy and that the full effects of earlier cash rate reductions are yet to be felt. The Board remains cautious about the evolving outlook and will respond as necessary to deliver price stability and full employment.