Stronger-than-expected consumer spending is complicating the outlook for further rate cuts, as recent economic indicators show a moderate rebound in household demand. The Reserve Bank of Australia (RBA) has acknowledged that this momentum, if sustained, could shift the timing of future policy decisions.
According to News, a combination of rising disposable incomes and regional recovery following adverse weather events contributed to the stronger data. Although the RBA has not made any commitments, its latest commentary suggests that the pace of household consumption will remain a key factor in assessing the need for additional rate cuts.
Disposable Incomes and Weather Recovery Fuel Rebound
The Australian economy grew by 0.6% in the June quarter, outperforming forecasts of 0.4% to 0.5%, according to the Australian Bureau of Statistics (ABS). Annual GDP growth reached 1.8% between June 2024 and June 2025, with GDP per capita also increasing 0.2%.
A key driver was household spending, which climbed 0.9%, boosted by a 1.4% rise in discretionary purchases — the strongest in three years. This upswing was especially visible in Queensland and New South Wales, where households replaced items damaged by recent extreme weather events.
“Economic growth rebounded in the June quarter following subdued growth in the March quarter, which was heavily impacted by weather events,” said Tom Lay, ABS head of national accounts.
rising incomes, flat housing prices shift dynamics
The shift in consumer behavior is being partly attributed to improved financial conditions at the household level. “Disposable incomes had been rising in the last year, combined with lowering house prices,” said RBA Governor Michele Bullock.
This combination has put monetary policy in a delicate position. While economists had expected a slow return of consumer activity, the strength of recent data has led the RBA to reassess the likelihood of near-term rate cuts.
Bullock: Not Ruling Out Cuts, but Less Certain
Speaking at the Shann Memorial Lecture, Governor Bullock offered a nuanced take on the evolving outlook.
For some time we have been predicting the Australian consumer would spend more and they are, slowly, as they are value conscious – she said.
She added:
What it means for future interest rates, I don’t know at this stage, but if it’s anything, it’s a little stronger than we thought it would.
That said, momentum may have unintended consequences:
That is good, but if it keeps going, then there may not be many interest-rate declines left to come, but it all depends.
Anz Warns: Neutral Stance Possible if Momentum Holds
Adam Boyton, head of Australian economics at ANZ, also flagged a potential shift in the policy environment.
If evidence of consumer spending momentum continues and weakness does not emerge in the CPI or labour market data, the RBA may assess the cash rate as broadly neutral with no further cuts needed – he said.
Despite this, ANZ still leans toward one final cut.
We still think a rate cut in November is more likely than not, but the GDP figure increases the chances of there being no rate cut in November or, indeed, at all from here – Boyton added.
Markets Reprice Expectations for Rba Rate Cuts
Markets have now priced in a 79% chance of an RBA rate cut in November, while largely ruling out any easing in September.
This shift reflects increasing uncertainty around the need for further rate cuts, especially if consumer resilience continues and inflation data remains stable.
RBA Deploys AI to Improve Policy Modelling
In a separate announcement, Bullock revealed that the RBA is deploying artificial intelligence tools to enhance its forecasting capabilities.
Yesterday, the governor announced the role of AI will help improve forecasting for staffers to better understand economic conditions.
This initiative is part of the bank’s broader effort to improve its policy models in a fast-changing economic environment.
