Australia's Reserve Bank tipped to raise rates again

CreditorWatch Chief Economist Ivan Colhoun expects the Reserve Bank of Australia Board to raise the cash rate by 25 basis points at its next meeting, taking the official rate to its highest level in 18 years.

He expects the central bank to act after recent commentary from senior Reserve Bank officials signalled continuing concern about inflation, echoing the previous month's tone.

Colhoun said the increase would add pressure to indebted businesses and households at a time of elevated fuel prices, and would contribute to slower economic growth through 2027 as policymakers seek to bring inflation lower.

In his view, policymakers are weighing only two options: leaving rates unchanged or lifting the cash rate by a further 25 basis points. Larger moves are usually reserved for periods when the Board believes it needs to shift policy quickly, and he does not see that as the current position after four earlier increases this year.

The forecast follows a quarterly inflation reading that included a 1% rise in trimmed mean consumer prices in the third quarter. Colhoun said the result reinforced concerns within the central bank that inflation could remain above target for longer than expected.

He also said senior officials had stepped up warnings about the broader social effects of prolonged inflation, particularly on lower-income households, while signalling concern that some businesses were beginning to doubt inflation would return to 2.5%.

Inflation concern

Recent remarks from the Governor, Deputy Governor and Assistant Governor Sarah Hunter suggest inflation remains the dominant issue for the Board, Colhoun said. In his view, that makes a further rate increase highly likely unless a majority of external Board members rejects the advice of central bank staff.

Updated forecasts due to be presented to the Board are also expected to show inflation staying above target for longer without further policy tightening, strengthening the case for another increase, he said.

While the immediate decision appears clearer, the path beyond that is less certain, Colhoun said. He expects the Board to leave rates unchanged at its following meeting, and potentially for several months after that, while it examines the effect of the tightening already delivered during 2026.

In outlining his view of the meeting, Colhoun said the case for holding rates steady had previously rested mainly on risks to unemployment and the housing market. But the argument for restraining demand to curb inflation had proved stronger.

"The recent commentary of the Governor, Deputy Governor and Assistant Governor Hunter suggest these concerns remain to the fore, meaning short of a majority of the external Board disagreeing with the staff's views, a further rate rise is almost a certainty," Colhoun said.

He added that the Board was likely to receive revised forecasts showing inflation would remain above target for longer if policy was left unchanged.

"My expectation is that the Board will leave interest rates unchanged in December, and possibly for a few months beyond February, while it assesses the impact of the five interest rate increases over 2026," Colhoun said.