It’s a question many borrowers and investors are asking: after a bout of aggressive rate hikes, why haven’t central banks delivered the cuts that many expected in 2025? From Australia to parts of Europe and the Asia Pacific, rate-setters are showing restraint, even as the United States has begun to ease policy. Below we explore the main reasons behind the delay, and why interest rates may stay elevated longer than markets once hoped.
Where Did the Promise of Rate Cuts Come From
After the post-pandemic period of elevated inflation and aggressive monetary policy tightening, many economists expected central banks to begin cutting rates in 2025, as inflation cooled and economic growth appeared to slow. While 2025 did see some easing from the Reserve Bank of Australia (RBA), as the year unfolded the case for further cuts became clouded.
Sticky Inflation and Resilient Demand
One of the most important reasons interest rates have stayed higher than expected is that inflation remains “sticky” and has been slower to fall than central banks and markets hoped. Inflation even began to trend upwards in the latter part of 2025. When inflation stays elevated, lowering rates can risk fuelling another surge in prices.
In many economies, demand has remained surprisingly strong. Consumer spending and borrowing, especially in areas like housing, are still robust. That sustained demand reduces the urgency for rate cuts because policymakers want to avoid overheating.
Economic Uncertainty: Growth Not Weak Enough, But Not Strong Enough for Complacency
Central banks aim to balance two goals: to support growth and keep inflation under control. Right now, the economic environment is ambiguous: growth is neither crashing (which would demand cuts) nor booming (which might call for rate hikes). This in-between zone makes rate cuts harder to justify.
In some cases, central banks conclude that existing rates are already restrictive enough to moderate inflation without needing to move further. That reduces the urgency to cut, at least until there is clearer evidence of a slowdown.
The Evolving Effectiveness (and Limits) of Rate Cuts
Monetary policy doesn’t always work the same way it once did. With changes in demographics, debt levels, financial structures and global capital flows, traditional tools, such as simple rate cuts, may have less predictable effects. Some recent research suggests monetary policy’s impact might be more modest and uncertain than widely believed.
That uncertainty makes central banks more cautious. If rate cuts don’t reliably stimulate growth or control inflation, or worse, risk unintended side effects, central banks may prefer to wait.
For Borrowers and Markets, That Means Holding Pattern for Now
For mortgage holders in Australia, further rate relief may not come soon, as markets acknowledge both the possibility of further increases and a longer period of higher rates. The Commonwealth Bank of Australia, for example, expects home loan rates to remain largely unchanged through 2026.
For investors and markets, it means continued uncertainty. Many had priced in further rate cuts; those expectations have now been deferred or abandoned. As a result, until we see clearer signs of disinflation alongside economic softening, central banks may stay on hold or even pivot to further tightening.
What to Watch Next
- Next inflation and labour-market data: If inflation remains sticky and employment stays strong, central banks will likely stick with current rates, or may even increase. Keep an eye out for the next ABS CPI release on January 7, 2026.
- Global economic conditions: Slower growth internationally could eventually push central banks to ease, but only if inflation pressures ease first.
- Policy statements and central bank guidance: Watch for signals from central banks about how much they view current rates as “neutral” versus “restrictive,” and whether they see a “window” for easing.
In short: While earlier in the year markets hoped for multiple rate cuts, central banks, despite delivering some easing they have remained cautious due to inflation not falling far enough, demand remains resilient, and the economic picture is murky. The result: borrowing costs stay higher for longer, and borrowers may need to adjust expectations accordingly.
Reference List
- Reserve Bank of Australia. 2025 Monetary Policy Decision Statement. Reserve Bank of Australia. Accessed December 2025. https://www.rba.gov.au
- Commonwealth Bank of Australia. Australian Economy at a Crossroads. CBA Economic Insights. Published October 2025. Accessed December 2025. https://www.commbank.com.au/articles/newsroom/2025/10/australian-economy-crossroads-commbank-view.html
- Commonwealth Bank of Australia. RBA Holds Interest Rates in November. CBA Newsroom. Published November 2025. Accessed December 2025. https://www.commbank.com.au/articles/newsroom/2025/11/rba-november-rates-call.html
- National Australia Bank. Interest Rate Outlook Update. NAB Research Commentary. Published November 2025. Accessed December 2025. https://au.finance.yahoo.com/news/nab-joins-commonwealth-bank-in-ditching-further-rba-interest-rate-cuts-no-longer-expect-040739278.html
- International Monetary Fund. World Economic Outlook Update. International Monetary Fund. Published January 2025. Accessed December 2025. https://www.imf.org
- JPMorgan Global Research. Global Market Outlook. JPMorgan Chase and Co. Published 2025. Accessed December 2025. https://www.jpmorgan.com/insights/global-research/outlook/market-outlook
Written by Andrew Whelan, General Manager – AP Group
AP Group are the leading pharmacy experts in Australia and specialise in helping first time buyers find the right pharmacy and secure the finance to support their purchase.
We connect existing owners with over 5000 ready and eager investors via our cutting-edge online Data Room. Our Data Room keeps confidential listing data secure and allows buyers to make informed decisions on each of our pharmacies for sale.
AP Group have built connections with all the major banks and a host of smaller lenders, ensuring that first time pharmacy buyers find a better deal.
About the Author:
When Andrew Whelan is not out pedalling his bike or looking after his two marvellous kids, he’s pedalling through pharmacy finance and strategy development.
Having been with AP Group since the beginning, Andrew has more than a decade experience in pharmacy and is an asset to the sales and finance division. He’s a numbers wizard, people person and sustainability champion — leading AP Group to achieve official Carbon Neutral Certification with Climate Active.
Before AP Group, Andrew spent more than a decade in the telecommunications and media industry including 7 years at Telstra in a variety of senior management roles and 3 years in the United Kingdom managing the commercial function for the British Sky Broadcasting — a time where it was the fastest growing broadband provider in the UK.
So it’s no surprise that he is well equipped to help customers with some of the biggest decisions they will ever make — buying a home or investing in a pharmacy — and helping to show them what’s truly possible.