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Markets expect the RBA to lift its 4.60% cash rate again by February
Australia's central bank lifted its cash rate to a 15-year high of 4.60% on Sept 29, its fourth hike of 2026. The board says it is ready to go further, so teams on floating Australian rates should plan for one more step into early 2027.
The Product Desk · Product desk
What happened
- The board voted unanimously for a 25 basis point increase, bringing this year's tightening to a full percentage point.
- Governor Michele Bullock said the board had considered keeping rates steady at this meeting before deciding to move.
- Markets imply a 33% chance of another hike in November and almost fully price a rise by February 2027.
- Brent crude has climbed nearly 20% since the RBA's August meeting, with few signs of a resolution in the Gulf conflict.
- Household spending went flat in August after a strong three-month run, though its annual rate held at 6.8%.
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Why it matters
- cost Floating-rate borrowers pay for the next step first: a budget set at 4.60% is 25 basis points short if the market's February pricing proves right.
- decision With a November move at one-in-three odds and a February move near-certain, the budget most likely to be wrong is the one covering early 2027.
- constraint AMP's Shane Oliver sees a second further hike as unnecessary, so a plan that assumes two or more further hikes goes beyond AMP's forecast.
- exposure Data centre builders are borrowing into a rate path their own spending feeds, by Westpac's count of the boom's demand and Hauser's worry about AI-driven investment.
At the press conference after the decision, governor Michele Bullock said the hope was "that this will be restrictive enough, those four interest rate increases, to bring things down. Now, will it be enough? I don't know." [4] A team that set its 2026 budget in January was working off a cash rate of 3.60% [1]. This year's 100 basis points of tightening has more than reversed the 75 points of cuts in 2025 [12]. The rate now sits 25 points above where it was before those cuts [2].
The board's statement is conditional. It says the board will do what it considers necessary, "including increasing the cash rate target further if needed." [9] Traders are more specific and have almost fully priced a rise by February 2027 [6]. On the day of the decision, three-year government bond yields fell six basis points to 4.974% and the Australian dollar slipped 0.4% to 69.89 US cents [5].
The case for another hike rests on prices and investment. Headline inflation for August is forecast at 4.1%, 1.1 percentage points above the top of the RBA's 2% to 3% band, with underlying inflation expected at 3.6% [8][4]. Growth ran at 2.1% in the second quarter, above the 2% the bank believes the economy can sustain without generating inflation [13]. Westpac puts the data centre investment boom at as much as A$175 billion [10]. Deputy governor Andrew Hauser came back from the US more worried about inflation after seeing the AI-driven investment frenzy firsthand [11]. The jobless rate edged up to 4.6% only because more people entered the workforce [15].
The case for stopping rests on households and home prices. Shane Oliver, chief economist at AMP, said "the risk of another rate hike is very high." [16] He also said that by November "there is likely to be more evidence of a cooling economy, sharply falling home prices, a softer jobs market and rising recession risks so we don't think a second hike - let alone a third - will be necessary." [17]
Taken together, the market pricing and AMP's forecast both point to one more increase. For anyone whose borrowing cost resets off the Australian cash rate, I'd plan through February on 4.85%. That is today's rate plus one 25 basis point step, the size of each of this year's four moves [3]. The cost of that choice: if Oliver is right about the cooling, a team on the 4.85% plan will have held back money in early 2027 that it could have spent.
Two questions sort a team's exposure. The first is whether its cost of money resets with the cash rate before February or is fixed. The second is whether its revenue depends on Australian household spending [14]. A team with floating debt and household customers takes the hit on both lines, so its plan needs 4.85% and a softer top line. With floating debt and other customers, the problem is cost only. Fixed debt with household customers moves the risk to demand. A team fixed on both counts is exposed mainly through the currency. The test is the same in every quadrant: a plan that only works at 4.60% needs a second version at 4.85% before the RBA meets in November [6].
What to watch
- Wednesday's August inflation data, forecast at 4.1% headline and 3.6% underlying; a hotter print strengthens the case for a November move.
- The RBA's November meeting, priced at 33% for a hike, and whether the cooling AMP's Oliver expects shows up in the data before it.
- Brent crude and the Gulf conflict, since oil's nearly 20% climb since August is feeding the inflation forecast.