The Reserve Bank of Australia has kept interest rates on hold at its October 2025 meeting, with Governor Michele Bullock providing one of the starkest updates yet on the nation’s troubled housing market. While rates remain unchanged, the central bank’s assessment signals continued pressure on households navigating rising costs, limited housing supply, and sluggish affordability prospects.
RBA Keeps Key Rate Steady
The RBA’s cash rate remains at 4.35 percent, where it has held since mid-2024. After an aggressive series of increases through 2022 and 2023, the central bank has shifted to a prolonged holding pattern as price pressures ease more slowly than hoped. Inflation has been edging down but remains just above the RBA’s target band, leaving policymakers cautious about loosening too early.
Governor Michele Bullock noted that while economic activity has cooled, particularly in consumer spending, wage growth and lingering cost pressures mean the RBA needs further evidence before considering rate cuts. The decision to maintain rates allows the Bank to balance inflation management against the mounting financial strain faced by households.
Bleak Housing Forecast
Alongside its monetary policy update, the RBA delivered an unusually blunt assessment of Australia’s housing market. Bullock warned affordability challenges are at their worst in decades, predicting conditions will deteriorate further before they improve.
Housing demand remains strong, driven by robust population growth and migration, yet supply bottlenecks continue. Residential construction has slowed under higher borrowing costs, labor shortages, and soaring material prices. As a result, new housing completions are well below what’s needed to balance the market.
Bullock cautioned that rental markets are under acute stress with vacancy rates at historic lows, particularly in Sydney, Melbourne, and Brisbane. Rents have surged by more than 25 percent nationwide in the past two years, with little relief in sight. The Governor described the situation as “a structural imbalance that monetary policy alone cannot fix,” urging for coordinated supply-side policy reforms to alleviate pressure.
Economic Growth Stagnates
Underlying the RBA’s cautious stance is an economy flirting with stagnation. GDP growth has slowed to just 1.4 percent year-on-year, well below long-term averages. Household consumption has weakened considerably, with spending concentrated almost entirely on essentials.
Unemployment remains relatively low at 4.5 percent but has begun edging upward as sectors sensitive to interest rates, like construction and retail, pull back. Business investment has also plateaued, particularly in housing-related industries.
Despite these headwinds, Australia avoids a technical recession, thanks in part to strong export earnings from resources and services. However, the RBA highlighted downside risks, particularly if global conditions weaken further or domestic housing pressures spill more deeply into the broader economy.
Why the RBA is Holding Firm
The Bank’s decision underscores its cautious balancing act. Cutting rates prematurely risks reigniting inflation, particularly if housing costs remain elevated. Conversely, higher rates would worsen affordability problems and slow economic growth further.
By holding the cash rate steady, the RBA is signaling patience: waiting for clearer trends and resisting market calls for early rate cuts. Markets had been pricing in possible policy easing later this year, but Bullock’s assessment suggests households should not expect quick relief.
Implications for Homeowners and Renters
For homeowners, the rate pause provides stability after two years of steep repayment increases. Mortgage holders on variable rates, however, continue to contend with repayments that are significantly higher than in 2021, when rates were near record lows. Refinancing pressures remain acute, with the proportion of household income devoted to mortgage servicing sitting at multidecade highs.
Renters fare no better, with little prospect of cost relief over the short term. The RBA warned that without meaningful policy action to boost housing supply, rents will continue to climb. This has tangible flow-through effects on inflation, as housing costs make up a large share of the consumer price index.
Government Measures Under Scrutiny
Bullock’s comments place renewed pressure on both federal and state governments to accelerate housing initiatives. While measures such as the Housing Australia Future Fund are designed to expand affordable housing, progress has been slow and insufficient against escalating demand.
Industry groups have also voiced frustration about planning bottlenecks, local zoning restrictions, and infrastructure delays, all of which impede new development. The RBA has increased its calls for structural reform, emphasizing that monetary policy is ill-suited to resolving supply shortages.
Outlook for the Next Six Months
Looking ahead, the RBA expects inflation to return to its target band of 2 to 3 percent only gradually, while housing costs remain the single largest domestic pressure. Markets remain divided on the timing of the next rate move, with most economists now predicting the first cut will not come until mid to late 2026.
Governor Bullock reiterated that the Bank is prepared to act if inflation proves stickier than expected. At the same time, she acknowledged the growing fragility of household finances, saying the RBA remains highly attentive to the “distributional impacts” of prolonged high borrowing costs.
For now, Australians face a difficult landscape: interest rates locked at their highest levels in over a decade, stagnating growth, and worsening housing affordability.