Reserve Bank keeps interest rates on hold amid warning of persistent housing inflation – realestate.com.au

The Reserve Bank has kept cash rates steady today, maintaining a cautious stance as inflation continues to prove more persistent than expected.

As broader economic momentum weakens, the RBA remains focused on inflation in the services sector, and in particular housing costs, which continue to keep headline inflation high.

The challenge for policymakers is that the most persistent sources of inflation are now the least responsive to interest rate increases.

Rents remain high due to a shortage of rental properties.

Construction costs are declining only gradually as labor and materials constraints continue to impact new home construction.

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Utilities and insurance, which have been major contributors to household cost pressures, are largely driven by structural and regulatory factors, rather than consumer demand.

This creates a policy paradox.

Keeping interest rates high puts pressure on household spending and business investment, reducing demand.

But these same restrictive conditions hinder housing construction and discourage the supply of new rental properties, exacerbating the very housing inflation that the RBA is trying to control.

Although the labor market is softening, it is holding up better than expected.

Job vacancies have fallen from their peaks, but unemployment remains at levels consistent with full employment.

With housing and services inflation still high and wage growth yet to clearly decline, the RBA appears content to keep policy tight for longer.

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Ray White Chief Economist Nerida Conisbee

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For households, today’s decision means that mortgage repayments remain unchanged, but that relief is not yet on the horizon.

Interest rate cuts are still possible in 2026, but expectations have shifted further.

A move earlier this year now seems unlikely, with any easing more realistically limited to the second half, once inflation shows sustained progress towards the target range.

The Australian housing market continues to be supported by strong fundamentals: a rising population, persistent supply shortages and limited construction pipelines.

These conditions indicate continued upward pressure on rents and prices, even as higher financing costs limit the purchasing capacity of some buyers.

Today’s persistence reflects a central bank balancing slower demand with stubborn inflation, highlighting that a longer period at current interest rates is now the most likely path.