The Reserve Bank board concluded in September that achieving price stability would mean accepting slower growth in both demand and employment, Yahoo Finance reported, marking an explicit shift in the central bank's willingness to tolerate economic weakness under persistent adverse supply shocks. The board found that its earlier inflation forecasts, which projected a return to the midpoint of the 2 to 3% target range by late 2027, rested on favourable developments that no longer looked likely to occur.
The September decision was the fourth rate rise across the RBA's last six meetings, lifting the cash rate to its highest point since 2011. At the time of the September rate decision, inflation stood at 3.5%, above the RBA's target range of 2 to 3%.
Australian Bureau of Statistics data released after the September decision showed headline inflation had risen to 4.0%, largely because a temporary government fuel excise tax cut ended. The RBA's preferred underlying inflation measure, the trimmed mean, had been above the 2 to 3% target for 13 consecutive months, running at an annual rate of 3.6% in August.
Upside risks to inflation that the board had flagged in August were found, by the time of the September meeting, to have materialised or grown stronger. The board's preliminary staff assessment found that the upward surprise in underlying inflation more likely reflected greater domestic capacity pressures than pass-through of cost increases from the Middle East conflict. Domestic non-tradables inflation ran at 4.5% annually to the end of August, while tradables inflation linked to imports came in at 2.9% over the same period.
Members raised the possibility that the cash rate was not yet restrictive enough if neutral interest rates globally had increased, and flagged that tighter policy in other economies could drag on the Australian dollar if domestic rates stayed put. Holding rates steady was considered, with members citing possible headwinds from declining house prices, Middle East conflict uncertainty and delayed effects of past tightening, but those risks were weighed against the need to curb inflation and found wanting. The minutes stated that below-trend consumption growth would be needed for inflation to return to target.
REA Group data shows house prices nationally have fallen 3.3% from their March 2026 peak across six consecutive months of declines, with Melbourne down 5.2% and Sydney down 5.0%. Belinda Allen said the RBA was not concerned about economic weakness, including a recent rise in unemployment and falling house prices, and described the board's deliberations as heavily tilted toward inflation and upside risks to the inflation outlook. Shortly after the September rate announcement, RBA governor Michele Bullock said she recognised the decision was difficult for mortgage holders but warned that failure to lower inflation would require rates to go still higher.
The IMF forecast Australia's headline inflation finishing the year at 3.9%, higher than the RBA's August forecast of 3.6% by December. For 2027, the IMF put Australia's headline inflation at 3.1%, a figure that sits above both the RBA's 2 to 3% target band and the RBA's own projection of 2.6% by year-end. Shadow treasurer Tim Wilson described the IMF report as giving the Albanese Government two economic failing grades and said the government's spending levels were fuelling inflation while families and small businesses bore the cost through higher interest rates and prices.
The board explicitly left open the possibility of a further rate increase, meaning mortgage holders face continued uncertainty about whether repayments will rise again. Commonwealth Bank described the November meeting as a live meeting, meaning a further rate rise at that meeting remains possible even though its base case is for the RBA to hold. RBA data indicates that 2% of borrowers are already unable to meet essential expenses, while most continue to service their loans.
Reporting: Yahoo Finance, The Guardian, The Nightly
Written by Pick & Scroll News from the reporting and documents linked above.
