The RBA raised the cash rate by 25bp to 4.60% in a unanimous decision, but the stronger signal came from its assessment that previously identified inflation risks are now becoming reality. The Board said “some of the upside risks flagged in August are materialising,” pointing to higher global energy prices as the Middle East conflict broadens, rapid increases in technology-related goods prices driven by AI demand, and continued pressure on domestic capacity. Recent Australian inflation outcomes have also been stronger than the RBA expected at its previous meeting, while liaison suggests firms are facing cost pressures and are either raising prices or preparing to do so.
The RBA acknowledged that activity is slowing, with consumer spending easing, housing prices falling across most capital cities, new housing lending weakening and labour-market conditions softening broadly as expected. But the slowdown has not been sufficient to remove inflation pressure. The Bank noted that June-quarter output was somewhat stronger than expected, while business investment and debt growth remain strong. More importantly, it said higher fuel prices have already been “partially passed through to prices of other goods and services,” adding another inflation impulse on top of existing capacity pressures. That helps explain why the Board concluded that “a further tightening in financial conditions is warranted” even after three rate increases since the beginning of the year.
The policy message is therefore clearly hawkish, but not a commitment to another immediate hike. The RBA said it remains focused on ensuring that high inflation does not become embedded and warned that aggregate demand needs to remain subdued “for a period” to bring inflation back to target. Crucially, the Board said it would continue to do what is necessary, “including increasing the cash rate target further if needed.” With the hike itself largely anticipated, the unanimous vote and explicit willingness to tighten again are the more important signals for AUD: the RBA has shifted from guarding against upside risks to responding to inflation pressures it now sees as increasingly visible in the data.
Key Takeaways
- The RBA raised the cash rate by 25bp to 4.60% in a unanimous decision, making the vote itself a hawkish signal alongside the widely expected hike.
- The Board said “some of the upside risks flagged in August are materialising,” pointing to higher global energy prices, AI-related technology-goods inflation and continued domestic capacity pressure.
- Recent Australian inflation outcomes were stronger than expected, while firms are reporting rising costs and either increasing prices or preparing to do so.
- The RBA acknowledged that consumer spending, housing and labour-market conditions are easing, but concluded that the slowdown is not yet sufficient to remove inflation pressure.
- Higher fuel prices are already being partially passed through to other goods and services, adding to inflation generated by existing capacity constraints.
- Forward guidance remained clearly hawkish: the Board said it could “increase the cash rate target further if needed.”
- The stance is therefore hawkish but not pre-committed. Another hike remains an active option, but will depend on incoming inflation, activity and risk assessments.
