Cup Day cliffhanger: Will the RBA cut or hold interest rates?

Economists and banks are divided over whether the RBA will deliver a rate cut next Tuesday, as businesses and homeowners anxiously await the decision amid rising cost-of living pressures.

Experts remain divided on whether the RBA will cut rates.

While the nation turns its attention to the Melbourne Cup next Tuesday, there will be another big result many will be watching – the RBA’s interest rate decision.

Economists and banks are split about whether we’ll be seeing a rate cut next week.

With the cash rate sitting at 3.6 per cent, the RBA’s move could have major consequences for homeowners and businesses already battling rising costs and economic uncertainty.

Bank of Sydney's’s head of business banking, Sam Tomaras, says there’s a lot riding on next Tuesday’s decision.

“There’s a lot of uncertainty but SMEs [small to medium business] are cautiously optimistic,” he said.

“They are making money, but they are working harder to do it.

“Not only are rates unpredictable, but there’s cost pressures and market volatility.”

Governor of the Reserve Bank of Australia Michele Bullock. Picture: Jeremy Piper

Mixed Predictions on Rates

RBA governor Michele Bullock wasn’t giving nothing away at an Australian Business Economists gathering in Sydney on Monday, saying unemployment was a “little bit too high” and inflation was also a “little bit too high”, leaving economists to argue over the prospects of a rate cut.

Bankers are divided on whether the RBA will deliver good news next Tuesday.

“The Q3 consumer price index (CPI) report on Wednesday will be critical to the RBA’s decision on whether to cut interest rates at next week’s meeting,” Betashares Chief Economist, David Bassanese, said.

Betashares chief economist David Bassanese. Pic by James Croucher

“I still feel a steady 2.7 per cent underlying inflation rate could be good enough for a November rate cut.

“If so, it could see the RBA hold off cutting rates in February 2026 instead.”

But NAB forecasters are firmly of the view there won’t be a rate cut.

Group chief economist, Sally Auld, said the RBA will hold firm, citing inflationary pressures as the deciding factor.

“If the Q3 trimmed mean CPI prints in line with our forecast of 0.9 per cent quarter-on-quarter, we think the RBA will remain cautious and on hold in November, despite the recent uptick in the unemployment rate.”

Last month, the NAB were predicting a rate cut might not happen until May, but now are suggesting a fall might come earlier next year.

ANZ research economist Madeline Dunk agrees a cut is unlikely this month, predicting the RBA will keep rates on hold.

“The rise in the September unemployment rate is likely to be outweighed by an uncomfortably high trimmed mean inflation print in Q3,” Ms Dunk said.

ANZ expects one more 25 basis point cut in February, bringing the cash rate down to 3.35 per cent.

Westpac Chief Economist Luci Ellis. John Feder/The Australian.

But Westpac’s chief economist, Luci Ellis, said she sees a chance of a rate cut in November, though she admits it’s far from certain.

“There is still a decent chance that the RBA cuts in November, though this is not in the bag,” she said.

SMEs Feeling the Pressure

For small business owners, the uncertainty surrounding interest rates is adding to the pressure. Higher borrowing costs are squeezing margins, while fluctuating demand is making it harder to plan for the future. Yet, despite these challenges, many businesses are pushing ahead with plans for growth.

According to Fifth Quadrant’s SME Tracker, 42 per cent of SMEs are prioritising growth over the next 12 months, with 11 per cent planning to increase headcount — up from just 6 per cent in June.

Additionally, 57 per cent of SMEs expect Australia’s economy to strengthen or remain stable in the next three months.

“They are starting to look at the future,” Mr Tomaras said.

“Now is the time to step back and look at where they want go.

“Is the dream working? Where would you like to be heading.”

Productivity and Innovation Driving Growth

SMEs are increasingly turning to innovation to drive productivity and growth. AI is emerging as a key tool for businesses looking to streamline operations and improve decision-making. Tomaras highlighted how SMEs are using AI to cut costs, boost efficiency, and identify new opportunities.

Acquisitions are also gaining traction as a growth strategy. By acquiring complementary businesses, SMEs can expand their market reach, diversify their offerings, and achieve economies of scale. Mr Tomaras stresses the importance of careful planning and due diligence to ensure successful acquisitions.

Mr Tomaras emphasised the importance of having a clear strategy.

Many are hanging for further rates cuts.

“Small businesses need to be prepared for all scenarios. Whether rates go up, down, or stay the same, having a solid financial plan is key to navigating these turbulent times,” he said.

Ahead of next Tuesday, Mr Tomaras recommended three things for small businesses to keep in mind.

“Your bench strength is important. Having the right people around you is critical, whether it’s your bankers, accountants or lawyers,” he said.

“Tech is important, but your one-on-one relationships are essential.”

Planning for the future is the second key plank.

“As a small-business owner you need to take a break and think about the future”

Finally, taking advantage of the current volatile interest rate environment is key to grabbing current opportunities, Mr Tomaras believes.

“Now’s the time to review your finances. Look at your loans, see what’s secured and unsecured, and consolidate your borrowings.”