Australian Bond Exchange Weekly Update
12th December 2025
Key Points
Australia: The Reserve Bank of Australia (RBA) held the cash rate at 3.60% p.a. at its December meeting in what markets interpreted as a hawkish hold. The Bank signalled that inflation risks are now tilted to the upside after monthly CPI rose to 3.8% (YoY) in October. Upcoming inflation prints in January will be critical for the RBA’s February decision.
United States: The U.S. Federal Reserve delivered a 0.25% rate cut this week, but with three dissenting votes, markets viewed it as a hawkish cut. Chair Powell noted the Fed is “well positioned” to wait and assess the economic outlook following recent data distortions. The policy rate now sits in a range of 3.50%–3.75% p.a.
United Kingdom: The Bank of England (BoE) has kept its bank rate steady at 4.00% p.a. The latest inflation reading remains at 3.6% (YoY) well above the BoE’s 2% target—keeping the Bank in a cautious policy stance.
Eurozone: The European Central Bank (ECB) continues to maintain its deposit facility rate at 2.00% p.a. Eurozone inflation remains close to the Bank’s target, with October’s reading around 2.1% (YoY).
Here are the latest monetary‑policy and inflation figures for key economies:
| Region | Policy Rate | Latest Inflation (YoY) |
|---|---|---|
| Australia | Cash rate 3.60% p.a. (Reserve Bank of Australia, December 2025) | 3.8% to October 2025 (monthly CPI indicator) |
| United States | Policy range 3.50–3.75% p.a. (Fed cut 0.25% in December) | 3.0% to September 2025 (CPI) |
| United Kingdom | Bank rate 4.00% p.a. (Bank of England) | 3.6% to October 2025 |
| Eurozone | Deposit facility rate 2.00% p.a. (European Central Bank held rates steady) | Headline inflation ~ 2.1% (ECB projected average for 2025) |
Market Insights
- RBA’s Hawkish Hold: February Meeting Now in Play
- Fed’s Hawkish Cut Sparks Debate on the U.S. Outlook
- Australian Labour Market Softens but Policy Focus Stays on Inflation
RBA’s “Hawkish Hold” Keeps February Meeting in Focus
The Reserve Bank of Australia made the unanimous decision to keep interest rates unchanged at 3.6% p.a.at its Tuesday meeting, as expected. Markets interpreted the pause as a “hawkish hold,” and the upcoming February 2–3 meeting is now considered “live,” with a potential rate hike viewed as a possibility. Governor Bullock’s post-meeting comments highlighted that inflation risks are now tilted to the upside. This follows recent data showing monthly headline inflation rising to 3.8% in October, up from 3.6% in September. The outcome of the January 7 monthly CPI release and the more influential quarterly CPI on 28 January 2026 will be pivotal in determining the next policy move. During the press conference, bond yields moved slightly higher, with the Australian 3-Year Government Bond rising by around 10 basis points.
The Federal Reserve Delivers a “Hawkish Cut”
At 6:00am AEDT Thursday, the U.S. Federal Reserve delivered a 0.25% interest rate cut as widely expected. Despite the cut, markets labelled the move a “hawkish cut” given the unusually high number of dissenters. Two members preferred to keep rates on hold, while one advocated for a larger 0.50% cut, underscoring the difficulty policymakers face in interpreting economic conditions after the 43-day U.S. Government shutdown and the subsequent distortion and lag in data flows. Chair Powell noted that the Federal Reserve is “well positioned” to wait and observe how the economy evolves from here. Looking ahead, consensus expectations point to one or two additional cuts in 2026, U.S. mid-term election year. The press conference prompted volatility in rates markets, with both yields and the U.S. dollar ending the session lower.
Australian Employment Misses Expectations
Australian employment data released on Thursday morning came in softer than anticipated. Last month’s strong reading of a 41.1k increase has been followed by a decline of 21.3k jobs, despite expectations for a gain of around 20k. The fall was driven by a drop of 56.5k in full-time employment. Although the unemployment rate remained steady at 4.3%, the participation rate was affected by operational challenges in data collection, prompting speculation that unemployment may otherwise have been higher. Economists note that an unemployment rate around 4.5% is consistent with an economy operating near full employment, and given the typical volatility in month-to-month labour data, this release is unlikely to significantly concern an RBA that appears increasingly focused on emerging inflation pressures.
Looking Ahead: Major Central Bank Decisions Next Week
Attention now turns to several key central bank announcements. The Bank of England and the European Central Bank are both expected to leave policy settings unchanged. However, the focal point for markets will be the Bank of Japan’s upcoming Policy Rate decision and Monetary Policy Statement. Governor Ueda has previously signalled the possibility of raising rates from 0.50% to 0.75% p.a., and with upward pressure on Japanese government bond yields and persistent domestic inflation, any adjustment could have meaningful spillover effects—particularly as Japanese investors reassess offshore bond holdings.
*Data accurate as at 12.12.2025
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