The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.6% on Tuesday, its fourth increase of 2026 and the highest level since 2011. The nine-member board backed the decision unanimously, keeping further tightening on the table if inflation fails to cool. Traders responded by lifting the odds of another hike at the November meeting to 56%, up from near 50% before the announcement.
What pushed the board to move again
The RBA pointed to a widening Middle East conflict, which has kept global energy prices well above the levels assumed in its August forecasts. Higher fuel costs have partly spilled into the prices of other goods and services, adding to inflation from capacity pressures. The board also flagged AI-related demand as a factor pushing up global prices for technology goods.
Those forces show up clearly in the inflation numbers. Headline inflation hit 4.6% in March after fuel prices jumped 32.8% in a single month, according to ABS data. It eased to 3.5% by July, helped by a halving of the fuel excise in April. But the trimmed mean — the measure the RBA watches most closely — rose from 3.3% in March to 3.6% in July and has sat at 3.6% since May, above the bank's 2% to 3% target band.
A global tightening wave, with one exception
The RBA isn't moving alone. The US Federal Reserve lifted its target range by 25 basis points to 3.75% to 4% on September 16, its first hike since 2023. Days earlier, the European Central Bank raised its deposit rate to 2.5%. The Bank of Japan took its policy rate to 1.25% on September 18, the highest since 1995. The Bank of England held at 3.75% on September 17, though three of its nine policymakers voted for a hike.
Among the major central banks, only the Bank of England stood pat — and even there, the split vote signaled that the debate hasn't closed.
An economy that's cooling, but not enough
The growth backdrop is softer than it was earlier in the year. Australia's GDP grew 2.1% in the year to the June quarter, down from 2.5% in the March quarter. Housing prices have fallen in most Australian capital cities, the RBA noted. The jobless rate climbed to 4.6% in August, according to Bloomberg.
None of that has been enough to bring underlying inflation back to target, which is why the board said it will continue to do what is necessary — including raising the cash rate further if needed.
What to watch before the November meeting
Two data releases will shape the next decision. The ABS publishes August inflation data on Wednesday, and September figures, including quarterly readings, land on October 28 — ahead of the RBA's November meeting. If the trimmed mean stays at 3.6%, the case for another 25 basis points builds. If it finally cracks lower, the bank gets room to pause.
The swaps market is currently leaning toward a move, but it's not a done deal. The RBA has left itself an explicit escape hatch by tying any further hike to the inflation data, and the next batch arrives in a matter of days.
