The Reserve Bank's minutes explain the September rate rise

On 13 October 2026 the Reserve Bank of Australia (RBA) published the minutes of its Monetary Policy Board meeting of 28 and 29 September, when it raised the cash rate by 0.25 percentage points to 4.60 per cent. The minutes set out the reasons for the decision, the case the Board considered for leaving the rate unchanged, and the Board's view that it would increase the cash rate further if required.

The Board judged that the risks to inflation had grown

In August the Board named three risks that could keep inflation high: a renewed escalation of the conflict in the Middle East, rising prices linked to the global boom in artificial intelligence, and less spare capacity in the Australian economy than assumed. By September, the minutes record, the first had come to pass. Global energy prices were well above the RBA's August assumptions because of disrupted shipping, damaged refineries and low inventories, and Australian petrol and diesel prices were 13 per cent above its August forecasts.

Demand for artificial intelligence was lifting growth among Australia's trading partners and pushing up prices for parts used in the technology. Inflation in July was stronger than staff expected, particularly for market services, a group that leaves out prices set or regulated by government.

Staff judged that this surprise more likely reflected pressure on the economy's capacity than an unusually fast pass through of higher fuel costs. Labour costs per unit of output were growing faster than is consistent with the inflation target, mostly reflecting weak growth in productivity. Members concluded that these developments pointed to "an increase in the risk of persistently elevated inflation".

The Board weighed holding the rate and chose to raise it

The minutes describe two options. The case for an increase was that the risks had materialised or were building, that demand appeared to be running further ahead of supply than thought, and that inflation had already been above target for an extended period, so a timely response would best serve both low inflation and full employment.

Members also noted tentative signs that the neutral rate, the level of the cash rate that neither speeds up nor slows down the economy, may have risen. If so, a cash rate of 4.35 per cent was less restrictive than it would have been two years earlier. Rising rates overseas could also weaken the Australian dollar and loosen conditions here if the RBA stood still.

The Board briefly considered holding. Falling house prices could weigh on spending more than expected, uncertainty about the Middle East could dampen demand, and earlier increases could have a larger effect than forecast. Staff analysis suggested that even large falls in house prices would have only modest direct effects on spending. All members supported the increase, while acknowledging that the trade off between inflation and employment had become harder.

Households and the financial system were judged to be sound

The minutes report that house prices had fallen faster than expected and new housing loan commitments had dropped sharply, led by investors. Scheduled mortgage payments had risen to around 10 per cent of household disposable income, close to their 2024 peak. Fewer than 2 per cent of owner occupier borrowers were estimated to have a cash flow shortfall, where income does not cover repayments and essential spending. The median borrower in the lowest income group had savings buffers covering just under a year of repayments, and in the highest income group almost two years.

Australian Government bond yields rose materially, while measures of expected long term inflation built into bond prices were broadly unchanged. Australian shares fell about 5 per cent between the August and September meetings. The Board concluded that financial stability was not currently a constraint on its decisions, though it described threats to global financial stability as mounting.

Markets and bank economists are divided on November

At the time of the meeting, the minutes note, market pricing implied this increase, about 0.15 percentage points more by the end of 2026, and a further 0.30 percentage points in the first half of 2027. After the minutes were released, futures markets put the chance of an increase on 3 November at around 30 per cent, AAP reported on 13 October.

Among the major banks' economists, as compiled on 6 October, ANZ and Westpac expected an increase to 4.85 per cent in November, while Commonwealth Bank and NAB expected the rate to stay at 4.60 per cent and saw a risk of a further rise. After the minutes, Commonwealth Bank's economists said they regarded the November meeting as live.

The ABS publishes September labour force figures on 15 October and the September consumer price index on 28 October. The RBA's Deputy Governor is due to speak on 21 October. The Board announces its next decision at 2.30 pm on 3 November, together with updated forecasts. The full minutes are on the Reserve Bank's website.

Cash, term deposits and bonds respond to rates in different ways

Variable rates on cash accounts can move with the cash rate, while a term deposit fixes a rate for its term. Bonds pay regular interest and repay their face value at maturity if the issuer pays, and their prices can move in the meantime as yields change. We arrange high interest cash accounts, term deposits, bonds and managed funds, and your adviser can look at how a mix of them suits when you need your money and the income you want from it.

If you would like to talk through what the Reserve Bank's thinking means for your savings, investments or borrowing, please get in touch with your adviser.

This article is general information only. It does not take into account your objectives, financial situation or needs, and it is not a recommendation to buy, sell or hold any investment. Figures are as published on the dates given. Past performance is not a reliable indicator of future performance. Read the full risk warning