The Reserve Bank of Australia (RBA) is unlikely to cut interest rates in the near future.

The Australian dollar has stabilized after depreciating by 2% over the past week, pressured by the rapidly strengthening US dollar amid expectations that the Federal Reserve may reduce interest rate hikes. This sentiment arose after Fed Chair Jerome Powell stated on Thursday that the central bank would not rush to lower interest rates as the US economy remains robust.

Additionally, the Australian dollar faces pressure from declining commodity prices and ongoing concerns over China’s slowing economy. RBA policymakers, including Governor Michele Bullock, reaffirmed that interest rate cuts would only proceed once inflation is firmly under control. Consumer inflation expectations in Australia fell to 3.8% in November, down from 4.0% in the previous month, amid signs of a further slowdown in inflation. In September, the monthly inflation rate rose by just 2.1%, the lowest since 2021, staying within the RBA’s 2–3% target range for the second consecutive month. This decline in inflation has been partially supported by government measures to alleviate energy costs.

However, the RBA left interest rates unchanged for the eighth consecutive month during its November meeting, citing that while headline inflation has significantly decreased and may decline further, core inflation remains elevated, warranting a cautious approach to future rate cuts.

Meanwhile, Australia’s labor market shows signs of weakness, with the unemployment rate holding steady at 4.1% for the third straight month. Employment growth has also slowed, with only 15,900 jobs added compared to an expected 25,000. This could prompt the RBA to consider cutting rates sooner.

Fitch Ratings has maintained Australia’s credit rating at AAA with a stable outlook, citing high per capita income, stable medium-term growth prospects, and strong institutional and policy frameworks. However, the agency warned of potential fiscal deterioration over the next two years as the central bank may need to support the economy by reducing certain expenditures. The ongoing trade deficit remains a significant factor weighing on Australia’s fiscal outlook.

Private sector lending in Australia increased by 0.5% month-on-month in September, maintaining its level for the second consecutive month and aligning with market expectations. Personal loans grew modestly by 0.3%, up from 0.1% in August, indicating restrained spending compared to long-term trends. Meanwhile, housing loans rose by 0.5%. However, business loan growth slowed to 0.6% from 0.7% year-on-year, impacted by prolonged high interest rates, which have raised financing costs for companies.

Consumer confidence, on the other hand, rose by 5.3% to 94.6 points in November, marking its second consecutive monthly increase and reaching its highest level in two years. This improvement reflects optimism about the economic outlook and a potential easing of interest rates. Despite this, the index has remained below 100 for nearly three years. Household financial conditions have improved by 6.8% over the past year, while economic expectations for next year have risen by 8.7%.

Matthew Hassan, a senior economist at Westpac, commented, “Consumers feel less pressured about household finances and no longer worry about further rate hikes, resulting in greater confidence in the economic outlook.”