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Steve Campbell: Material inflation miss brings future rate cuts into question
November 04, 2025
Where to next after the Reserve Bank kept rates on hold at its Melbourne Cup Day meeting? Pendal’s head of cash strategies STEVE CAMPBELL explains
THE Reserve Bank left the cash rate unchanged at 3.6% on Melbourne Cup Day.
The result was as expected with the market pricing in a less than 10% probability of a rate cut.
Expectations for a cut had increased significantly following labour market data released in mid-October which saw the unemployment rate increase from 4.3% to 4.5%.
The result was driven by an increase in the participation rate rather than a fall in employment growth and saw the market move to price in around an 80% chance of a cut.
That all changed following the release of the third-quarter inflation in October.
Preceding the release, RBA Governor Michele Bullock was asked what would constitute a miss on the inflation forecast.
The RBA had forecast third-quarter trimmed mean inflation of 0.6% – and 0.3% would have been seen as a miss.
The actual result came out at 1% for the quarter, resulting in annual trimmed-mean inflation of 3%.
The result effectively killed any chance of a rate cut on Cup day.
So where does the RBA see things going forward? The RBA provided an updated set of forecasts via their Statement on Monetary Policy, as shown in the following table:
The most noticeable revision is to the trimmed mean in the nearer term.
It is not surprising there were upward revisions given the third-quarter inflation forecast miss.
The December 2025 and June 2026 forecasts were revised 0.6% higher to 3.2%.
There is clear concern from the RBA around housing and market services – key drivers of the higher third-quarter inflation.
Should there be less spare capacity in the economy than the RBA thought, it would leave them in an uncomfortable position if economic growth picked up.
What about the labour market?
The 4.5% unemployment rate indicates more slack and some prospect of a rate cut.
In her press conference, Governor Bullock pointed to a host of other labour market indicators which suggest the labour market is tighter than the unemployment rate implies.
The RBA’s updated forecasts showed only modest changes to unemployment forecasts.
Where next for the RBA?
If the RBA’s inflation forecast is realised, it is difficult to see any easing from the RBA until the second half of 2026.
Inflation at 0.7% above the mid-point of the target band – and disinflationary pressures not as imminent – don’t support a case for a further rate cut.
If you’d like to hear more about how Pendal’s Income & Fixed Interest team is positioning for this environment, please contact us through your account manager by reply email.
Find out about
Pendal’s
cash funds
About Steve Campbell and Pendal’s Income and Fixed Interest team
Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.
Find out more about Pendal’s cash funds:
Short Term Income Securities Fund
Pendal Stable Cash Plus Fund
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at November 4, 2025. PFSL is the responsible entity and issuer of units in the Pendal Short Term Income Securities Fund (Fund) ARSN: 088 863 469. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com.
The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested.
This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs.
This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards.
Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections.
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