Australia’s inflation by November showed a decrease, but banks still do not see any interest rate relief coming. The markets were anticipating a softer policy; however, the lenders kept on warning about the persistent pressures.
The trimmed mean inflation was 3.2% for the year ending November 2025, which was, however, high compared to 3.3%. The CPI index for the country came down from 3.8% to 3.4%, as well. October’s figures are now in line with the decision to consider monthly CPI as the primary inflation metric.
Jim Chalmers, the Treasurer, was not very enthusiastic about the data and said that inflation was still over the limit. He pointed out that the households are still under pressure even if there is a little relief. The central bankers’ attention is still on the long-term stability issue.
Government sees progress, but warns inflation remains elevated. [Source: The Business Standard]
Why Did Inflation Not Change The Interest Rate Forecast?
Banks argue that the drop in the inflation rate was mostly due to the changes in the price of the always-volatile categories of electricity and travel. These things are fluctuating loads and do not mirror the wider price movements.
The underlying inflation is still above the level that the central bank would feel comfortable with. According to the economists, the trimmed mean inflation is the one that reflects the price trends that are here to stay.
This one also has a stronger bearing on the decision-making regarding the policies. Therefore, the expectation of the rates staying unchanged remains strong.
Impact Of Interest Rates On Stocks Remains A Market Focus
The interest rates’ effect on the share market is still very important for the investors’ strategy. The rise in the rates increases the cost of borrowing and pushes the business to grow at a slower pace. The reactiveness of the equity valuations to policy guidance is quite fast.
The sectors that are traditionally defensive tend to do better when the risk of tightening goes up. When the funding costs rise, the growth stocks come the pressure. As the signals are still mixed, the investors have chosen to be cautious.
Investors adjust positions as rate risks stay elevated. [Source: PGIM]
Will The Reserve Bank Raise Rates In February?
The National Australia Bank anticipates two rate hikes of 25 basis points in February and May. It has been vocal about other banks raising rates, notwithstanding the recent easing of inflation. Economists in their camp think that further tightening will be positive in terms of reducing risks.
The Commonwealth Bank is of the viewpoint that one hike of 25 basis points would take place in February. The bank attributes the decrease in prices to short-lived factors. Moreover, it cautioned that the risks of inflation in the December quarter are still high.
Interest Rate Forecast Divides Major Lenders
On the other hand, ANZ is predicting that the interest rates will not change, but the outlook is uncertain. The bank noted that the price index for the consumer rose steadily during the entire second half of 2025.
It is expected that there will be a lot of discussions at the upcoming meeting. Similarly, Westpac is also of the opinion that there will be no change in the rates until 2026. The bank contends that the drop in prices is a result of volatility rather than weaker demand.
It is the opinion that the present monetary policy is still stringent enough. AMP’s view is also that there will be no change in the interest rates during February or in 2026. The bank pointed out that rents and building costs remain resistant to changes. However, it expects inflationary forces to decline slowly.
Banks differ on timing, not on inflation concerns. [Source: The Economic Times]
How Inflation Affects Investments Across Asset Classes
Inflation’s impact on investments will be contingent upon the industry’s exposure and cost structures. Bond prices go down whenever there is an upswing in yield as the market readjusts its prices. The stocks will have a hard time pushing through due to fundamental factors that are driving up their valuations and hence affecting the discount rates.
Higher mortgage repayments will put more pressure on the real estate markets. Consumer companies will be negatively affected when the overall consumption decreases. In the case of currency devaluation, the exporters will be the only ones who will be able to enjoy the benefit, as their revenues will be supported.
January 28th marks the day when the December quarter CPI data will be released, which will be closely monitored by the investors. The Reserve Bank accords more significance to the quarterly data than to the monthly figures. The release of the data will be a determinant of the February policy.
Also read: Bank CD Rates 2025 Signal New Investor Opportunities
FAQs
Q1: Why are banks not expecting rate cuts yet?
A1: Banks believe inflation remains too high and is driven by persistent factors.
Q2: What is the current inflation level in Australia?
A2: Trimmed mean inflation was 3.2 per cent in the year to November 2025.
Q3: How does the interest rate forecast affect stock markets?
A3: Higher rates reduce growth valuations and increase market volatility.
Q4: When is the next key Reserve Bank decision?
A4: The next policy meeting is scheduled for 3 February after the CPI data.
