Australian Rate Seen Rising to 4.85% as Inflation Accelerates to 4.3%
Key Facts
Markets expect the Reserve Bank of Australia to raise its cash rate to 4.85% at its meeting scheduled for Tuesday, Nov. 3, from 4.60%, where it has stood since Sept. 30. The outlook reflects renewed inflation pressures after annual inflation rose to 4.3% in September, compared with 4.0% in August. The trimmed mean inflation rate also rose to 3.6% from 3.5% over the same period. The Australian Broadcasting Corporation estimated that markets were pricing in a greater than 80% chance of a rate hike to 4.85%. Reuters reported a nearly 90% chance of an increase, with a 20% probability of the rate reaching 5.1%.
The outlook follows the bank's 25-basis-point rate increase to 4.60% on Sept. 29, when it said inflation remained high and some upside risks were beginning to materialize. That earlier increase was part of a tightening path aimed at curbing prices, while September data show both headline and underlying inflation accelerating. Deputy Governor Andrew Hauser said inflation levels were "higher than they should be," signaling the bank's continued concern about the price outlook. In August, the bank had forecast headline inflation returning to its 2–3% target range by early 2027, alongside weak economic growth during 2026. In those forecasts, it said the trimmed mean inflation rate was 3.6% in the year to June and scheduled mortgage payments had risen to high levels relative to household income.
Meanwhile, the housing market faces sustained pressure alongside expectations of tighter monetary policy. National home prices fell 1.2% in October from September, following a revised 1.3% decline the previous month. Prices are now 6.7% below their peak and 2.8% below their level a year earlier, marking a seventh consecutive monthly decline. Reuters said home values in state capitals fell 8.1% over seven months, the fastest pace of decline in 40 years, according to the source. The figures show the property market slowing at the same time as inflation rises, putting the bank under conflicting pressures as it sets the rate path.
Weakness in the property market has also extended to transactions: Cotality said property sales were down 23% from a year earlier and 18% below the five-year average. The decline was steeper in Sydney, where transaction volumes fell 30% annually. HSBC Australia said another rate hike risked pushing the economy into recession, particularly amid the marked fall in home prices. In August, the central bank said higher conflict-related costs would continue to pressure headline and underlying inflation in the near term, while slower demand could help bring the economy back into balance in 2027. The November meeting puts these risks at the center of the debate, with inflation still above the path back to target outlined by the bank.
The bank is scheduled to announce its updated interest rate on Nov. 3 at 2:30 p.m., according to its official timetable. After the decision, investors will look to the minutes of the November meeting, scheduled for Nov. 17, for details of the board's discussion of inflation, the economy and the monetary policy path. In August, the bank had indicated that gross domestic product growth would be weak during 2026, with inflation expected to return to the target range in early 2027. It also said slower demand could help rebalance the economy in 2027. The expected decision comes as data show rising prices alongside falling home prices and transactions, factors that will figure in the bank's assessment of its next move.