Did the RBA Just Kill the Rate-Cut Dream? An Overview for Business Owners and Investors.
Quick-Read Summary.
Source: RBA
Published: December 10 2025
Recently, the Reserve Bank of Australia on December 9 2025, decided to retain the cash rate at 3.6%, and it seems that it won’t be cutting it any time soon. The reason for this is inflation has stopped falling and in fact appears to be potentially tracking back upwards to the 3.8% mark, and also services prices are “proving stubborn”, which all combines to make the RBA openly admit that it needs “far more evidence” before it even thinks about easing interest rates further.
Certainly we have noticed a significant reduction, if not a complete end, to the previous rhetoric of the possibility of a further rate cut in 2025 or indeed early in 2026, which now seems highly unlikely at the least.
If you’re a business owner or a property investor and you’ve been banking on obtaining cheaper money in 2026, it looks likely that you could be in for a nasty surprise.
The RBA Decision in More Detail.
The RBA Media Release on 9 December 2025 states: “The recent data suggest the risks to inflation have tilted to the upside, but it will take a little longer to assess the persistence of inflationary pressures.” Ref: RBA Media Releases
The release continues on to make these remarks:
“Economic activity continues to recover. Growth in private demand has strengthened, driven by both consumption and investment. Activity and prices in the housing market are also continuing to pick up. Financial conditions have eased since the beginning of the year, credit is readily available to both households and businesses and the effects of earlier interest rate reductions are yet to flow through fully to demand, prices and wages. On the other hand, money market interest rates and government bond yields have risen more recently.
Various indicators suggest that labour market conditions remain a little tight. The unemployment rate has risen gradually over the past year and employment growth has slowed. However, measures of labour underutilisation remain at low rates, surveyed measures of capacity utilisation are above their long-run average and business surveys and liaison continue to suggest that a significant share of firms are experiencing difficulty sourcing labour. Wages growth, as measured by the Wage Price Index, has eased from its peak but broader measures of wages continue to show strong growth and growth in unit labour costs remains high.” Ref: RBA Media Releases
You’ve got to love the rather blindingly obvious comment: “…prices in the housing market are also continuing to pick up.”! – one would think the RBA could think up some deeper commentary than that, as younger generations struggle to find a way to make an entry into the housing market. Anyway, despite that, certainly the tone of the RBA narrative has shifted in a way that should get our attention. The RBA Board’s language in its latest statement describes policy as “mildly restrictive” – which is central bank code for “we think we’ve tightened enough to lean on inflation without crushing the economy, so we’re going to sit here and wait.”
Unfortunately, the data does not seem to be cooperating with the RBA’s previous suggestions of a further rate cut within the next six month window.
Headline inflation re-accelerated to around 3.8% year-on-year in October. That’s the fastest pace in seven months and above what markets were expecting. But what’s likely to have been more deeply considered by the RBA is the trimmed mean measure of “underlying inflation” which has unfortunately escalated to roughly 3.3% instead of nicely behaving itself within the desired target band of 2-3%
Here are some of the key factors driving the heat:
- Housing costs. No great surprises here to read that these re still rising strongly with pressure both on trades and services (see point 3 below), and materials – although having said that, its interesting to note that the HIA announced in July this year that “Home building materials have continued to experience only modest cost increases, up by 1.6 per cent in the 2024/25 financial year,” Ref: HIA
Despite that, and as a side note of interest, here are some of the materials categories that rose the most:
Copper pipes and fittings: +13.9%
Electrical cable and conduit: +8.3%
Fibrous cement products: +7.5%
Ready-mixed concrete: +5.7%
Timber doors: +5.2%
Anyone building or renovating a house might have an argument with these modest-sounding increases in building materials, but according to the HIA anyway, materials don’t seem to be causing a disproportionate rise in housing costs.
Rents of course, continue to climb largely due to undersupply and net immigration pressures. - Energy Prices. Another category which won’t cause any of us to fall off our seats in surprise. Energy prices, incredibly, jumped more than 30% even after government rebates, thus adding persistent upward expense pressure for households, businesses, and industry across the board.
- Services Inflation. What does this mean exactly in the RBA lingo? Generally, when the RBA references services inflation, they’re referring to anything that is not a “hard product.” So services like haircuts, restaurant meals, insurance premiums, professional fees, childcare, trades, and those sorts of service industries. The biggest cost component of these sorts of services is labour. And labour does not respond to a reduction in inflation as quickly as hard products and supplies do.
This is the reason why the RBA is particularly focused on this category and why it is referring to its performance as “stubborn”. Services inflation is running well above target range. While goods inflation has moderated significantly (in some cases, goods prices are actually falling), services inflation is still running at around 4–5% year-on-year depending on the category. That’s well above the RBA’s 2–3% target range and above the overall inflation rate.
On top of all this, business conditions and GDP growth have surprised on the upside. The economy has more momentum than earlier forecasts assumed, which in plain terms means demand hasn’t cooled enough and inflation hasn’t fallen far enough for the RBA to risk cutting rates futher.
What’s really driving the RBA’s thinking right now?
Several themes keep surfacing in recent Board decisions, speeches and forecasts. Understanding these helps make sense of why rate cuts have been pushed so far out.
👉 They’re not confident the job is done. Inflation has certainly reduced since the high of 2022 which we all remember painfully! The Board is worried – and they’ve said this pretty openly – that cutting too early could re-ignite price pressures and damage their credibility. They got behind the curve on the way up. They don’t want to get it wrong on the way down.
👉 The new monthly CPI data is still uncertain. They’re having to factor in some “redefinition” of the way CPI data is reported by the Australian Bureau of Statistics (ABS). Until recently, these CPI data were published quarterly, but in late 2022, the ABS started publishing data on a full monthly basis. The monthly CPI reporting uses slightly different methods and covers slightly different things, and thus has introduced new volatility and a degree of additional uncertainty into inflation measurement. The RBA now gets 12 data points a year instead of four, but it’s also openly admitted it’s still learning how much of the monthly movement is real signal versus statistical noise. That uncertainty is one reason they’re being so cautious about rate cuts – they’re not entirely confident the data are telling them what they think it’s telling them!
👉 The path between growth and inflation is narrow. The economy is growing, but not strongly. The labour market is easing, but it’s not weak. The Board’s own language describes a “tug-of-war” between still-too-high inflation and a recovery that isn’t strong enough to justify hiking rates again. So the safest option is hold, watch and wait!
👉 The journey back to being in target range is likely to be long. Current inflation forecasts only project inflation getting close to the midpoint between 2-3% by around 2027. (Ref: RBA) Thus there is little incentive for the RBA to push towards a rate cut early.
What this actually means for business owners
For our clients running businesses – whether that’s a construction firm, a real estate agency, a professional services practice or something else entirely – the message is blunt: the cost of money will stay elevated longer than many of you budgeted for.
Interest and cash-flow pressure won’t ease quickly
Variable business loans, overdrafts and equipment finance costs are all anchored to a 3.60% cash rate. Banks aren’t pricing in early cuts. This means debt-heavy businesses need rolling 12–24 month cash-flow forecasts that assume current rates persist (at minimum).
👉 Balancing Wage and pricing decisions becomes trickier.
With inflation still near 4%, staff are under cost-of-living pressure for pay increases, but business demand is soft in many sectors, so these costs cannot just be automatically passed through.
Pricing reviews need to move away from reactive, ad hoc rises to planned, data-based adjustments that protect margin without scaring off customers.
👉 Capital Expenditure Projects and re-investment need careful assessment
We strongly rapital investments should be carefully tested with higher discount rates and more conservative revenue assumptions. Leasing versus buying decisions – such as for vehicles, equipment, and fit-outs, should ideally be revisited using updated interest and inflation assumption inputs.
This is where working with an accounting partner who understands your industry – particularly in real estate and construction, where cash flows can be lumpy and rate-sensitive – adds real value. (Feel free to contact us here)
What about for property investors?
👉 Holding costs and yield pressure
Mortgage rates still remain somewhat elevated. Whilst its true that rents are of course still rising, they may not necessarily be keeping pace with funding costs in all markets (and we’re already seeing this play out in some areas).
We recommend that Investors should re-run portfolio cash flows assuming no rate relief through at least the rest of 2026.
Check that your buffer for vacancies, repairs and rate creep is still adequate. What looked sustainable at a cash rate of 2.5% (actual loan rate will be double or triple!) doesn’t always hold at a cash rate of 3.6%, particularly if you’re also facing insurance, energy, and other services cost increases as well as council rate hikes.
👉 Capital growth expectations need a reset
With borrowing capacity constrained and affordability at record lows, price growth is likely to moderate even if outright declines are avoided. The trade-off shifts towards quality of asset and rental resilience, and towards long-term tax and gearing strategy rather than short-term capital gains.
For many investors who are also business owners, the key question becomes: how much capital belongs in the operating business versus additional property risk in a potentially fairly flat, high-rate market environment?
The planning premium just went up
All of this creates a premium (and competitive opportunity) on careful, numbers-driven planning rather than guesswork and blind optimism.
For business owners, there’s a strong case for revisiting funding structures, cash-flow management and scenario planning – particularly in sectors like real estate agencies, construction, hospitality, and services, where rate-sensitive demand and lumpy cash flows make mistakes expensive.
For property investors, the angle is portfolio sustainability: tax planning, gearing modelling under higher rates, and integrated strategies for owners who straddle both business and property.
Overall, the good news is we’re not looking at a crisis. We’re looking at a longer period of tight monetary policy that requires smarter, more disciplined planning. The businesses and investors who treat this as a planning challenge rather than a waiting game will be the ones still standing strongly when rates do eventually ease.
If you’re running a business or holding property and want to stress-test your assumptions against this new reality, we’re here to help. Our work with a wide range of industries, but specialising in the likes of real estate, construction and service-based businesses has given us an excellent handle on what works when the cost of money stays higher for longer than anyone expected.
Contact us here for a consultation with one of our Keypoint expert accountants.
