The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.85%, but the Australian dollar fell. The increase was heavily anticipated. What changed was the message around the next one: three Board members preferred to hold, the statement dropped an explicit reference to further increases, and Governor Michele Bullock favoured taking time to assess the incoming data.
The RBA still has an inflation problem. It has not promised another hike to solve it.
What changed since September
| Policy area | 29 September | 3 November |
|---|---|---|
| Action and vote | Raised rates to 4.60%; unanimous. | Raised rates to 4.85%; six favoured the increase, three a hold. |
| Forward guidance and wording | Explicitly retained further increases if needed. | Retained the commitment to restore price stability, but removed that explicit phrase. |
| Tone and risks | Upside inflation risks were materialising as activity slowed. | The inflation outlook deteriorated further, alongside greater concern about housing and unemployment. |
September's statement included the words “including increasing the cash rate target further if needed.” November retained the wider commitment to bring inflation back to target but omitted that clause. This is a meaningful reduction in explicit tightening guidance, rather than a promise that rates have peaked.
At the press conference, Bullock defended the increase while declining to identify the next rate move. Her preference to wait for more data matters because the policy effects are already spreading through the economy. The split vote shows disagreement over the balance of risks, rather than a change in the inflation objective.
Higher inflation, a more difficult growth outlook
The new forecasts point to an uncomfortable trade-off. Relative to August, the RBA raised its December 2026 headline inflation forecast to 4.5% from 3.6%, and trimmed-mean inflation to 3.6% from 3.3%. Domestic capacity constraints and higher energy and technology-related costs all contribute to the problem.
The cost of restraining it is becoming clearer. December 2027 GDP growth is now forecast at 1.3%, down from 1.6%, while unemployment is projected to reach 5.1% by December 2028, compared with 4.8% previously. The published tables put headline and underlying inflation at 2.5% by mid-2028.
Those forecasts use a market-derived cash-rate assumption reaching around 4.9% in June 2027, based on pricing at 28 October. That is a modelling assumption, not a Board commitment or a fresh post-meeting market forecast.
The risks run both ways. Persistent energy disruption, weak productivity and cost pass-through could require more tightening. A sharper housing downturn or weaker spending could instead make the existing restraint bite harder than expected. Today's increase does not resolve that tension.
Why AUD fell
AUD/USD initially dropped roughly 16 pips, from 0.6994 to 0.6978, in the first minute after the announcement. The broader currency sell-off remained visible through the European morning preparation. That wider weakness matters: it was not simply an isolated move against USD.
Our reading is that an expected hike offered too little additional support once the vote and guidance left room for a pause. AUD had already been weak before the decision, with global technology sentiment and China's uneven demand picture adding headwinds. The policy announcement therefore contributed to an existing difficult backdrop; it did not create every part of the decline.
For now, the previous positive policy tilt is insufficient to support a near-term AUD-long preference. That does not establish an easing cycle or rule out another increase. A constructive currency case needs renewed relative-rate support and sustained gains across peers.
What the next data need to show
Watch household spending, employment, hours worked and wages alongside the breadth of services and underlying inflation. The question is whether demand is slowing enough to reduce domestic price pressure, without a materially worse housing or labour-market outcome. Headline energy moves matter, but their persistence and pass-through matter more than one daily oil swing.
What Invalidates This Thesis
The cautious near-term AUD assessment would be challenged by firmer relative policy expectations and sustained broad currency gains, particularly if domestic data or subsequent guidance restore a credible case for additional tightening. Better Chinese demand and an improvement in global funding conditions would strengthen that challenge. More persistent AUD weakness alongside deteriorating domestic demand would reinforce the cautious view, even while inflation remains above target.
Sources: RBA November decision; September decision; November forecast overview and detailed outlook; Reuters post-decision reporting; ABS household-spending schedule; RBA calendar. Price references describe the observed reaction, not executable quotes.
