Summary:
- The RBA has held the cash rate steady, with no clear timeline for cuts.
- Most major banks now expect the first cash rate cut in early to mid-2026.
- While businesses have remained broadly resilient, some sectors continue to face pressure.
- Strong competition among lenders has improved access to business finance.
The Reserve Bank of Australia (RBA) kept the official cash rate on hold in September, maintaining its cautious stance amid mixed signals from the domestic economy.
“Financial conditions have eased since the beginning of the year and this seems to be having some impact, but it will take some time to see the full effects of earlier cash rate reductions,” said Governor Michele Bullock. The RBA will continue to take a “cautious” approach to setting interest rates, going “meeting by meeting, based on the data”.
Financial markets, which had earlier priced in a 50/50 chance of a cash rate cut by November, quickly revised those odds down to around 35%. The consensus among major banks now suggests that rate relief will not arrive until early to mid-2026 – a notable shift from earlier forecasts that had anticipated at least one more cut in 2025.
For small and medium-sized businesses that had been expecting cuts to arrive sooner, the delay means more frustration than relief. Fortunately, strong competition amongst business lenders is improving access to finance for businesses looking to manage cash flow or fund growth.
RBA cash rate forecast suggest rate relief is slipping further away
Expectations of another cash rate cut before the end of 2025 are fading.
“With signs that private demand is recovering, indications that inflation may be persistent in some areas and labour market conditions overall remaining stable, the board decided that it was appropriate to maintain the cash rate at its current level at this meeting,” the RBA noted.
“We don’t really know where everything is in balance at the moment. We think we’re close, but we don’t know,” Bullock told the ABC. “It’s welcome that we’re getting this swing-up in activity. And if we can get that swing-up in activity at the same time as the labour market remains reasonably in balance, then that will also mean that inflation is staying under control.”
At this stage, Westpac is the only major bank still forecasting a cut before year’s end. NAB, CBA and ANZ have all shifted their expectations into 2026, with most anticipating the first move around February or May.
Despite the delay, the RBA expects pressure to gradually ease. “Businesses’ cash flow pressures are expected to ease as recent cash rate cuts gradually pass through to lower interest expenses,” noted its latest Financial Stability Review.
Cash flow pressures set to ease, but some sectors still under pressure
Australian businesses have remained resilient in an uncertain environment, with cash flow pressures expected to ease as previous cash rate cuts gradually pass through to lower interest expenses.
“Despite ongoing pressures, the business sector remains resilient overall given stable profit margins, strong credit availability and generally robust balance sheets,” noted The Reserve Bank’s latest Financial Stability Review.
But certain sectors are still facing acute challenges. “Insolvency rates remain elevated for small construction, discretionary retail and hospitality businesses,” the RBA stated, pointing to subdued demand and thin operating margins as ongoing stressors.
For many SMEs, pandemic-era cash reserves have now run down. “High cash buffers built during the pandemic have returned to more normal levels across small and medium enterprises,” the RBA observed.
In this environment, access to flexible business finance is critical to resilience. Competition among lenders, including non-bank providers, has improved credit access and reduced refinancing risks for many SMEs, notes the RBA. Advances in automated approvals and broader appetite for lending have also made it easier for some businesses to secure funding.
Access to business finance remains key as uncertainty lingers
With the RBA maintaining a cautious stance and most major banks pushing back their forecasts, businesses are likely to face a sustained period of higher borrowing costs. While financial conditions have eased slightly, any meaningful relief now looks to be a 2026 story.
With monetary policy now firmly in a holding pattern, businesses are operating in an environment where borrowing costs are unlikely to shift significantly in the short term. For many SMEs, the focus remains on managing cash flow, preserving margins, and maintaining flexibility in the face of an extended holding pattern.
In this context, continued access to finance – particularly from a broad and competitive lending market – remains a key factor supporting business resilience.
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Disclaimer: These comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
