RBA raised its cash rate target by 25bps from 4.60% to 4.85% at its November meeting, as persistently high inflation and mounting risks to inflation expectations prompted further monetary tightening. The decision was supported by six Board members, while three preferred to hold rates unchanged, highlighting disagreement over the need for additional restraint. More significantly, the accompanying Statement on Monetary Policy delivered substantial upward revisions to inflation forecasts, with headline CPI for December 2026 raised from 3.6% to 4.5% and trimmed mean inflation from 3.3% to 3.6%. For June 2027, headline inflation was revised from 2.8% to 3.7%, while trimmed mean inflation was lifted from 3.0% to 3.5%.
The deterioration in the inflation outlook reflects both higher energy prices associated with the Middle East conflict and stronger domestic cost pressures. RBA judged that capacity constraints have been somewhat tighter than previously estimated, while rising fuel costs are increasingly being passed through to other goods and services. AI-related investment is also contributing to higher prices for technology-related goods and supporting demand. With inflation remaining broadly based, the Board warned of “an increasing risk that higher inflation expectations will become embedded.” The updated projections now show trimmed mean inflation at 2.9% by December 2027, compared with 2.6% previously, with inflation expected to return to the midpoint of the 2–3% target range around mid-2028.
The higher inflation trajectory comes alongside a weaker economic outlook, complicating the policy trade-off. RBA lowered its December 2027 GDP growth forecast from 1.6% to 1.3% and raised its unemployment projection from 4.7% to 4.9%. Unemployment is now expected to reach 5.1% by the end of 2028, compared with 4.8% previously. The RBA acknowledged that “the economy is slowing, housing prices have fallen significantly and the unemployment rate has risen.” Higher interest rates and weaker housing conditions are expected to weigh further on dwelling investment and household consumption. Strong data centre investment should provide some offset, but not enough to prevent below-trend growth and a gradual increase in spare capacity.
The 6–3 vote underscores the uncertainty surrounding further tightening, despite the more concerning inflation projections. The majority concluded that “a further tightening in financial conditions is warranted” to support the return of inflation to target, but the substantial minority favouring a hold suggests differing assessments of how much additional restraint is necessary. Notably, the statement no longer explicitly refers to further rate increases if needed, instead emphasizing that the Board “will continue to do what it considers necessary to bring inflation sustainably back to target.” With inflation projected to stay elevated through much of 2027 but growth and employment conditions weakening, RBA has preserved the flexibility to tighten further without committing to another hike. The decision therefore signals continued determination to restore price stability, but not a predetermined path toward higher rates.
Data Summary
RBA Monetary Policy Decision — November 3, 2026
| Item | Decision / View |
|---|---|
| Cash rate target | 4.60% to 4.85% (+25bps) |
| Vote | 6 hike, 3 hold |
| Inflation assessment | Elevated, broadly based |
| Inflation outlook | Material upward revisions |
| Growth outlook | Below potential |
| Labour market | Unemployment rising |
| Guidance | Data-dependent, no explicit hike commitment |
| Inflation risks | Skewed to upside |
RBA Economic Forecasts — August vs November
Headline CPI (% yoy)
| Period | Aug Forecast | Nov Forecast |
|---|---|---|
| Dec 2026 | 3.6% | 4.5% |
| Jun 2027 | 2.8% | 3.7% |
| Dec 2027 | 2.6% | 2.7% |
| Dec 2028 | 2.4% | 2.4% |
Trimmed Mean Inflation (% yoy)
| Period | Aug Forecast | Nov Forecast |
|---|---|---|
| Dec 2026 | 3.3% | 3.6% |
| Jun 2027 | 3.0% | 3.5% |
| Dec 2027 | 2.6% | 2.9% |
| Dec 2028 | 2.4% | 2.4% |
GDP Growth (% yoy)
| Period | Aug Forecast | Nov Forecast |
|---|---|---|
| Dec 2026 | 1.4% | 1.6% |
| Jun 2027 | 1.5% | 1.6% |
| Dec 2027 | 1.6% | 1.3% |
| Dec 2028 | 1.8% | 1.5% |
Unemployment Rate (%)
| Period | Aug Forecast | Nov Forecast |
|---|---|---|
| Dec 2026 | 4.5% | 4.7% |
| Jun 2027 | 4.6% | 4.8% |
| Dec 2027 | 4.7% | 4.9% |
| Dec 2028 | 4.8% | 5.1% |
Key Takeaways
- RBA raised rates despite a divided Board: The cash rate increased by 25bps to 4.85%, supported by six members, while three voted to hold. The split highlights differing assessments of how much additional monetary restraint is needed.
- Inflation forecasts deteriorated substantially: Headline CPI is now expected to reach 4.5% by December 2026, compared with 3.6% previously. Trimmed mean inflation is forecast at 3.5% by June 2027, up from 3.0%, with inflation returning to the midpoint of the target range around mid-2028.
- Inflation pressures extend beyond energy: Higher fuel and commodity prices associated with the Middle East conflict are increasingly feeding into other goods and services. Domestic capacity pressures are also judged tighter than previously estimated, while AI-related investment is adding to technology-related costs and demand.
- Growth and employment outlooks weakened: GDP growth for December 2027 was revised down from 1.6% to 1.3%, while unemployment is expected to reach 5.1% by end-2028. Falling housing prices, weaker consumption and restrictive financial conditions are expected to weigh on activity.
- Further tightening remains possible but not predetermined: The RBA warned that higher inflation expectations could become embedded, but the 6–3 vote and more general data-dependent guidance leave the next move uncertain. The statement no longer explicitly refers to further hikes if needed, while preserving the Board’s commitment to restoring inflation to target.
