They’ll go with the (data) flow
The RBA has almost certainly not yet decided whether or not to cut the cash rate in November. The data flow from here will determine the outcome, with hesitation now likely to result in more cuts later.
There is still enough data to come before the next RBA meeting to justify a November cut, even though currently available information would suggest a hold is more likely.
Some recent data on inflation and household spending may contain less signal about the outlook for subsequent quarters than the RBA’s September communication seems to imply. A hold in November could be followed by a downside inflation surprise in the December quarter and a cash rate cut in February, similar to the flow of surprises in late 2023 and early 2024.
If the RBA does hold the cash rate steady at the November meeting, the chance increases that it cuts in February and ends up at a trough of 2.85% rather than something higher.
It’s almost certain that RBA has not yet decided whether or not to cut the cash rate at its November meeting. If the meeting were held today, they would keep rates on hold, awaiting further data. Several potentially decisive data releases are due before the actual meeting, though, including the September labour data and the full quarterly CPI. Until then, we need to hold two possible futures in mind: hold or cut.
The August CPI indicator did imply an ugly result for the September quarter. Our own nowcast for the trimmed mean measure is a ‘big’ 0.8%qtr that could easily round up to a 0.9%, a result that would surely stay the RBA’s hand. Looking at the detail, though, outside home-building costs it is not clear that the August data provided much signal of an ongoing higher rate of inflation than expected. As we noted at the time, the result in market services was mixed, with some personal services inflation below our forecasts while the cost of eating out was stronger. The latter suggests that, following a period of retrenchment in hospitality (evident in the labour account employment data), improving conditions have allowed for some margin repair. Some of the price gains may also indirectly relate to recent annual award wage increase; though this is a normal seasonal effect, its size will depend on how margins react. Neither of these influences on price growth are likely to be sustained if demand remains patchy.
We therefore think the economy could be in for something like a re-run of late 2023, when an upside surprise in September quarter inflation was followed by a downside surprise (to something more like our own near-cast) in the December quarter. The result was a hike in late 2023 followed by an ‘on-the-fly’ pivot following the February 2024 meeting – from flagging possible further hikes in the post-meeting statement to ‘not ruling anything in or out’ in the media conference. That message landed a lot better, and sure enough, the next move was, eventually, a cut.
We are also mindful of the two-sided risks around both the labour market and household spending data. We will know more about the labour market shortly when the September monthly labour force data is released next week, completing the picture for the quarter. So far, we see a gradual softening in employment growth as demand pivots away from the jobs-rich ‘care economy’. The unemployment and underemployment consequences of this are being masked by an unwind in the extra labour supply induced by earlier cost-of-living pressures. With demographic drivers still implying an upward trend in labour force participation, we see more latent labour market slack emerging over time and weighing on wages growth and inflation. There is precedent for this outcome in Australia’s experience in the late 2010s.
On household spending, the August Household Spending Indicator, released after the September RBA Monetary Policy Board (MPB) meeting, was notably below market expectations. This accords with our assessment that the expected recovery in consumer spending has been patchy and that the strength in national accounts consumption in Q2 partly reflected some one-off factors such as insurance payouts and the unwinding of some electricity rebates. Though we see two-sided risks around the consumption outlook, the more downbeat tone from consumer sentiment in recent months certainly suggests that underlying momentum is still subdued. Given how weak real household incomes have been for a number of years, this ongoing pessimistic tone does not surprise us.
Recall also that a recovery in household spending is necessary to counterbalance the slowdown in public sector demand growth that is already underway. Faster growth in household spending should only stay the MPB’s hand from further rate cuts if the pick-up is stronger than implied by the RBA’s August forecasts. These were constructed on an assumption of a couple more cash rate cuts, as the market was pricing at the time. Far too many observers are in the habit of seeing any pick-up in demand or housing prices as something for policy to react against, rather than as the expected and intended transmission of monetary policy. The Governor’s comments at the latest media conference show that the RBA, at least, does understand the difference.
The rates outlook boils down to the issue of how much signal to take from an upside surprise in one quarter in terms of what that means for subsequent quarters. RBA Governor Bullock has on several occasions insisted that ‘we will be guided by our forecasts’. However, that statement sits a bit uncomfortably with the flat profile for the RBA’s trimmed mean inflation forecasts and the unemployment rate. These give the impression of a set of forecasts being used as a communication device to explain and frame a policy decision rather than an independent input into that decision. This is understandable and perhaps inevitable given the judgement involved in synthesising the output of many different models and information sources. However, it does hold the risk that the policy view helps shape the forecast rather than the other way around.
What’s left in these circumstances is reactivity to incoming data – that is, to the recent past. As well as making policy less predictable – contrary to the MPB’s stated intentions – it is not a great way to run an economy policy setting that affects the economy with a lag, especially when inflation has been within the target range for a little while now at the same time as policy is likely still restrictive.
Bottom line: the odds that the RBA cuts in November are, at this point, below 50% but still a long way from zero. The data flow could change things again. Frankly, the prospect of flip-flopping a ‘call’ as the month goes on is unattractive, especially when it is quite obvious that the policymakers have not made up their mind yet. We must hold the two possibilities in mind at least until the labour market data come in. (A good-enough labour market result would make it unlikely that the RBA would cut, even if the September quarter CPI comes in a little more benign than we currently expect.)
The RBA communications schedule has half a dozen speeches between now and the November meeting that will be opportunities for it to provide guidance on some of its key forecast judgements, though they all pre-date the release of the September quarter CPI. If the RBA does hold in November, though, our conviction that they end up cutting in February rises, as does our expectation that the trough will be 2.85% rather than something higher. The more the MPB hesitates in the face of uncertainty, the more likely it is that domestic inflation pressures surprise it on the downside next year, and trimmed mean inflation turns out more like the Westpac Economics forecast than the August RBA one.
Stay informed with Westpac IQ
Get the latest reports straight to your inbox.
Related articles
Australia and NZ Weekly 13 October 2025
Australia and NZ Weekly 6 October 2025
Australia and NZ Weekly 6 October 2025
Browse topics
Disclaimer
©2025 Westpac Banking Corporation ABN 33 007 457 141 (including where acting under any of its Westpac, St George, Bank of Melbourne or BankSA brands, collectively, “Westpac”). References to the “Westpac Group” are to Westpac and its subsidiaries and includes the directors, employees and representatives of Westpac and its subsidiaries.
Things you should know
We respect your privacy: You can view our privacy statement at Westpac.com.au. Each time someone visits our site, data is captured so that we can accurately evaluate the quality of our content and make improvements for you. We may at times use technology to capture data about you to help us to better understand you and your needs, including potentially for the purposes of assessing your individual reading habits and interests to allow us to provide suggestions regarding other reading material which may be suitable for you.
This information, unless specifically indicated otherwise, is under copyright of the Westpac Group. None of the material, nor its contents, nor any copy of it, may be altered in any way, transmitted to, copied of distributed to any other party without the prior written permission of the Westpac Group.
Disclaimer
This information has been prepared by the Westpac and is intended for information purposes only. It is not intended to reflect any recommendation or financial advice and investment decisions should not be based on it. This information does not constitute an offer, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter into a legally binding contract. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice. Certain types of transactions, including those involving futures, options and high yield securities give rise to substantial risk and are not suitable for all investors. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision. This information may contain material provided by third parties. While such material is published with the necessary permission none of Westpac or its related entities accepts any responsibility for the accuracy or completeness of any such material. Although we have made every effort to ensure this information is free from error, none of Westpac or its related entities warrants the accuracy, adequacy or completeness of this information, or otherwise endorses it in any way. Except where contrary to law, Westpac Group intend by this notice to exclude liability for this information. This information is subject to change without notice and none of Westpac or its related entities is under any obligation to update this information or correct any inaccuracy which may become apparent at a later date. This information may contain or incorporate by reference forward-looking statements. The words “believe”, “anticipate”, “expect”, “intend”, “plan”, “predict”, “continue”, “assume”, “positioned”, “may”, “will”, “should”, “shall”, “risk” and other similar expressions that are predictions of or indicate future events and future trends identify forward-looking statements. These forward-looking statements include all matters that are not historical facts. Past performance is not a reliable indicator of future performance, nor are forecasts of future performance. Whilst every effort has been taken to ensure that the assumptions on which any forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from any forecasts.
Conflicts of Interest: In the normal course of offering banking products and services to its clients, the Westpac Group may act in several capacities (including issuer, market maker, underwriter, distributor, swap counterparty and calculation agent) simultaneously with respect to a financial instrument, giving rise to potential conflicts of interest which may impact the performance of a financial instrument. The Westpac Group may at any time transact or hold a position (including hedging and trading positions) for its own account or the account of a client in any financial instrument which may impact the performance of that financial instrument.
Author(s) disclaimer and declaration: The author(s) confirms that (a) no part of his/her compensation was, is, or will be, directly or indirectly, related to any views or (if applicable) recommendations expressed in this material; (b) this material accurately reflects his/her personal views about the financial products, companies or issuers (if applicable) and is based on sources reasonably believed to be reliable and accurate; (c) to the best of the author’s knowledge, they are not in receipt of inside information and this material does not contain inside information; and (d) no other part of the Westpac Group has made any attempt to influence this material.
Further important information regarding sustainability-related content: This material may contain statements relating to environmental, social and governance (ESG) topics. These are subject to known and unknown risks, and there are significant uncertainties, limitations, risks and assumptions in the metrics, modelling, data, scenarios, reporting and analysis on which the statements rely. In particular, these areas are rapidly evolving and maturing, and there are variations in approaches and common standards and practice, as well as uncertainty around future related policy and legislation. Some material may include information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. There is a risk that the analysis, estimates, judgements, assumptions, views, models, scenarios or projections used may turn out to be incorrect. These risks may cause actual outcomes to differ materially from those expressed or implied. The ESG-related statements in this material do not constitute advice, nor are they guarantees or predictions of future performance, and Westpac gives no representation, warranty or assurance (including as to the quality, accuracy or completeness of the statements). You should seek your own independent advice.
Additional country disclosures:
Australia: Westpac holds an Australian Financial Services Licence (No. 233714). You can access Westpac’s Financial Services Guide here or request a copy from your Westpac point of contact. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice.
New Zealand: In New Zealand, Westpac Institutional Bank refers to the brand under which products and services are provided by either Westpac (NZ division) or Westpac New Zealand Limited (company number 1763882), the New Zealand incorporated subsidiary of Westpac ("WNZL"). Any product or service made available by WNZL does not represent an offer from Westpac or any of its subsidiaries (other than WNZL). Neither Westpac nor its other subsidiaries guarantee or otherwise support the performance of WNZL in respect of any such product. WNZL is not an authorised deposit-taking institution for the purposes of Australian prudential standards. The current disclosure statements for the New Zealand branch of Westpac and WNZL can be obtained at the internet address www.westpac.co.nz .
Singapore: This material has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (as defined in the applicable Singapore laws and regulations) only. Recipients of this material in Singapore should contact Westpac Singapore Branch in respect of any matters arising from, or in connection with, this material. Westpac Singapore Branch holds a wholesale banking licence and is subject to supervision by the Monetary Authority of Singapore.
U.S.: Westpac operates in the United States of America as a federally licensed branch, regulated by the Office of the Comptroller of the Currency. Westpac is also registered with the US Commodity Futures Trading Commission (“CFTC”) as a Swap Dealer, but is neither registered as, or affiliated with, a Futures Commission Merchant registered with the US CFTC. The services and products referenced above are not insured by the Federal Deposit Insurance Corporation (“FDIC”). Westpac Capital Markets, LLC (‘WCM’), a wholly-owned subsidiary of Westpac, is a broker-dealer registered under the U.S. Securities Exchange Act of 1934 (‘the Exchange Act’) and member of the Financial Industry Regulatory Authority (‘FINRA’). In accordance with APRA's Prudential Standard 222 'Association with Related Entities', Westpac does not stand behind WCM other than as provided for in certain legal agreements between Westpac and WCM andobligations of WCM do not represent liabilities of Westpac. This communication is provided for distribution to U.S. institutional investors in reliance on the exemption from registration provided by Rule 15a-6 under the Exchange Act and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors in the United States. WCM is the U.S. distributor of this communication and accepts responsibility for the contents of this communication. Transactions by U.S. customers of any securities referenced herein should be effected through WCM. All disclaimers set out with respect to Westpac apply equally to WCM. If you would like to speak to someone regarding any security mentioned herein, please contact WCM on +1 212 389 1269. Investing in any non-U.S. securities or related financial instruments mentioned in this communication may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the SEC in the United States. Information on such non-U.S. securities or related financial instruments may be limited. Non-U.S. companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect in the United States. The value of any investment or income from any securities or related derivative instruments denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related derivative instruments.
The author of this communication is employed by Westpac and is not registered or qualified as a research analyst, representative, or associated person of WCM or any other U.S. broker-dealer under the rules of FINRA, any other U.S. self-regulatory organisation, or the laws, rules or regulations of any State. Unless otherwise specifically stated, the views expressed herein are solely those of the author and may differ from the information, views or analysis expressed by Westpac and/or its affiliates.
UK and EU: The London branch of Westpac is authorised in the United Kingdom by the Prudential Regulation Authority (PRA) and is subject to regulation by the Financial Conduct Authority (FCA) and limited regulation by the PRA (Financial Services Register number: 124586). The London branch of Westpac is registered at Companies House as a branch established in the United Kingdom (Branch No. BR000106). Details about the extent of the regulation of Westpac’s London branch by the PRA are available from us on request.
Westpac Europe GmbH (“WEG”) is authorised in Germany by the Federal Financial Supervision Authority (‘BaFin’) and subject to its regulation. WEG’s supervisory authorities are BaFin and the German Federal Bank (‘Deutsche Bundesbank’). WEG is registered with the commercial register (‘Handelsregister’) of the local court of Frankfurt am Main under registration number HRB 118483. In accordance with APRA’s Prudential Standard 222 ‘Association with Related Entities’, Westpac does not stand behind WEG other than as provided for in certain legal agreements (a risk transfer, sub-participation and collateral agreement) between Westpac and WEG and obligations of WEG do not represent liabilities of Westpac.
This communication is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. This communication is not being made to or distributed to, and must not be passed on to, the general public in the United Kingdom. Rather, this communication is being made only to and is directed at (a) those persons falling within the definition of Investment Professionals (set out in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”)); (b) those persons falling within the definition of high net worth companies, unincorporated associations etc. (set out in Article 49(2)of the Order; (c) other persons to whom it may lawfully be communicated in accordance with the Order or (d) any persons to whom it may otherwise lawfully be made (all such persons together being referred to as “relevant persons”). Any person who is not a relevant person should not act or rely on this communication or any of its contents. In the same way, the information contained in this communication is intended for “eligible counterparties” and “professional clients” as defined by the rules of the Financial Conduct Authority and is not intended for “retail clients”. Westpac expressly prohibits you from passing on the information in this communication to any third party.
This communication contains general commentary, research, and market colour. The communication does not constitute investment advice. The material may contain an ‘investment recommendation’ and/or ‘information recommending or suggesting an investment’, both as defined in Regulation (EU) No 596/2014 (including as applicable in the United Kingdom) (“MAR”). In accordance with the relevant provisions of MAR, reasonable care has been taken to ensure that the material has been objectively presented and that interests or conflicts of interest of the sender concerning the financial instruments to which that information relates have been disclosed.
Investment recommendations must be read alongside the specific disclosure which accompanies them and the general disclosure which can be found here. Such disclosure fulfils certain additional information requirements of MAR and associated delegated legislation and by accepting this communication you acknowledge that you are aware of the existence of such additional disclosure and its contents.
To the extent this communication comprises an investment recommendation it is classified as non-independent research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and therefore constitutes a marketing communication. Further, this communication is not subject to any prohibition on dealing ahead of the dissemination of investment research.