Rates on hold again as the RBA continues to exercise caution

The Reserve Bank of Australia has decided to keep interest rates on hold at its meeting today, dashing hopes of an early Christmas present for mortgage holders.

In a widely anticipated decision, the RBA has once again cited persistently high inflation as the reason for the pause. While acknowledging inflation has fallen substantially since it peaked at 7.8 percent in December 2022, the board said in a statement that there was still work to be done.

“Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance,” the RBA board said in a statement. “Measures of underlying inflation are around 3.5 percent, which is still some way from the 2.5 percent midpoint of the inflation target.

“The most recent forecasts published in the November Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026.”

In further signals that a rate cut is still some way off, the board noted that the economic outlook remained ‘uncertain’ both in Australia and overseas, where some central banks have made cuts to their cash rates in recent months.

“There remains a high level of uncertainty about the outlook abroad. Most central banks have eased monetary policy as they become more confident that inflation is moving sustainably back towards their respective targets,” the board said.

“They note, however, that they are removing only some restrictiveness and remain alert to risks in both directions, namely weaker labour markets and stronger inflation. “Geopolitical uncertainties remain pronounced.”

CoreLogic research director Tim Lawless said the RBA board’s decision to stick to its ‘steady as she goes’ approach was finely balanced.

“Tight labour market conditions, juxtaposed with a combination of low productivity growth, weak economic conditions and high inflation demonstrates the ‘narrow path’ the RBA is traversing, keeping rates high while avoiding a recession or blow out in the unemployment rate,” Mr Lawless said.

“So far, the RBA has held to this path; the economy has staved off a recession, albeit largely due to population growth and government spending.

“Similarly, households are battling through a seven-quarter ‘per capita’ recession that has been compounded by a period of negative real income growth and a depletion of savings, yet we haven’t seen mortgage arrears rise beyond 2 percent.”

He noted that, despite the lack of movement in the cash rate, home values were up 5.5 percent over the past year, although there was now evidence the heat was coming out of the market.

“Home purchasing is winding down, total listing numbers rising, the clearance rate is falling and homes are taking longer to sell,” he said. “Affordability may increasingly see buyers drop out of the market amid high interest rate settings.”

Based on the data, he said it was still likely mortgage holders could see a rate drop in the first half of 2025. The RBA board will meet again in February.

The boom in casual footware ushered in by the pandemic has ended, a potential problem for companies such as Adidas that benefited from the shift to less formal clothing, Bank of America says.

The casual footwear business has been on the ropes since mid-2023 as people began returning to office.

Analyst Thierry Cota wrote that while most downcycles have lasted one to two years over the past two decades or so, the current one is different.

It “shows no sign of abating” and there is “no turning point in sight,” he said.

Adidas and Nike alone account for almost 60% of revenue in the casual footwear industry, Cota estimated, so the sector’s slower growth could be especially painful for them as opposed to brands that have a stronger performance-shoe segment. Adidas may just have it worse than Nike.

Cota downgraded Adidas stock to Underperform from Buy on Tuesday and slashed his target for the stock price to €160 (about $187) from €213. He doesn’t have a rating for Nike stock.

Shares of Adidas listed on the German stock exchange fell 4.5% Tuesday to €162.25. Nike stock was down 1.2%.

Adidas didn’t immediately respond to a request for comment.

Cota sees trouble for Adidas both in the short and long term.

Adidas’ lifestyle segment, which includes the Gazelles and Sambas brands, has been one of the company’s fastest-growing business, but there are signs growth is waning.

Lifestyle sales increased at a 10% annual pace in Adidas’ third quarter, down from 13% in the second quarter.

The analyst now predicts Adidas’ organic sales will grow by a 5% annual rate starting in 2027, down from his prior forecast of 7.5%.

The slower revenue growth will likewise weigh on profitability, Cota said, predicting that margins on earnings before interest and taxes will decline back toward the company’s long-term average after several quarters of outperforming. That could result in a cut to earnings per share.

Adidas stock had a rough 2025. Shares shed 33% in the past 12 months, weighed down by investor concerns over how tariffs, slowing demand, and increased competition would affect revenue growth.

Nike stock fell 9% throughout the period, reflecting both the company’s struggles with demand and optimism over a turnaround plan CEO Elliott Hill rolled out in late 2024.

Investors’ confidence has faded following Nike’s December earnings report, which suggested that a sustained recovery is still several quarters away. Just how many remains anyone’s guess.

But if Adidas’ challenges continue, as Cota believes they will, it could open up some space for Nike to claw back any market share it lost to its rival.

Investors should keep in mind, however, that the field has grown increasingly crowded in the past five years. Upstarts such as On Holding and Hoka also present a formidable challenge to the sector’s legacy brands.

Shares of On and Deckers Outdoor , Hoka’s parent company, fell 11% and 48%, respectively, in 2025, but analysts are upbeat about both companies’ fundamentals as the new year begins.

The battle of the sneakers is just getting started.

Rates on hold again as the RBA continues to exercise caution

The board adhers to its policy of taking the ‘narrow path’ to keep the Australian economy on track, avoiding a recession while the property market shows signs of resilience

The pandemic-fuelled love affair with casual footwear is fading, with Bank of America warning the downturn shows no sign of easing.