Cup Day call: a fifth hike is coming
Inflation came in hot on Wednesday, the RBA's leadership is sounding worried, and markets now see a rise as close to certain. Our read: the cash rate goes from 4.60% to 4.85% next Tuesday.
Updated 2 November 2026: CBA and NAB have joined Westpac and ANZ in calling a hike. Earlier analysis is archived.
Our Call
Why we think the RBA hikes on Tuesday
The case for holding rested on one thing: the September-quarter inflation figures coming in soft. They didn't. Underlying (trimmed mean) inflation rose 1.0% over the quarter, against the RBA's own August forecast of 0.8%, and annual headline inflation climbed to 4.3% from 4.0%. That is the number the Board will have in front of it when it meets on Monday.
The RBA's leadership has been preparing the ground. A week earlier Deputy Governor Andrew Hauser said the inflation outlook was worse than forecast and warned of a "central banker's nightmare" if people stop believing inflation will come back to target. At Senate estimates on Wednesday, Governor Michele Bullock said inflation is likely to stay elevated for some time, that demand is still running ahead of what the economy can supply, and openly asked whether the rises delivered so far will be enough.
The best argument against a hike is the jobs market: unemployment jumped to 4.7% in September, a five-year high, as 39,300 jobs went. But the RBA has described the labour market as easing broadly as expected, and Hauser flagged that the September figures may be noisy. One soft month of jobs won't outweigh a quarter of hot inflation. Markets agree: pricing for a 25 basis point rise jumped from about 60% before the CPI release to 80–90% after it. And for the first time this cycle, all four major banks are on the same side: CBA and NAB both dropped their hold calls within a day of the inflation figures.
- Most likely: +0.25%, with a warning that more may be needed if inflation doesn't turn.
- The alternative: a hold with a statement focused on rising unemployment. Much less likely after Wednesday's figures.
- After that: most likely a pause over summer while five rises work through the economy.
- For a $550,000 loan: about $90 a month more on a typical variable rate.
Key Indicators
The numbers on the Board's desk
The latest figure for each thing the RBA weighs, and which way it points for Tuesday.
On trade: the shrinking surplus matters less for Tuesday than for the outlook. Imports are being pulled in by strong investment, led by capital goods, which is another sign demand is still running hot. A smaller surplus also gives the Australian dollar less support, and a weaker dollar makes imported goods and fuel dearer.
RBA Leadership
What the RBA is saying
Told Senate estimates on 28 October that inflation reflects both capacity pressures at home and global energy costs from the Middle East conflict, and is likely to stay elevated for some time. Said the Board will assess whether this year's tightening is enough to bring inflation back to target in a reasonable time.
On 21 October said the inflation outlook was materially worse than forecast, with a growing share of businesses treating 3–3.5% inflation as normal. On Wednesday called the September figures broadly in line with the RBA's expectations, but too high.
Treasurer Jim Chalmers said higher oil prices are driving inflation worldwide and Australia is not immune. Shadow Treasurer Tim Wilson blamed government spending for elevated core inflation and called for it to be reined in.
Market Watch
Where the banks and economists stand
All four major banks now expect a 25 basis point rise to 4.85%. CBA and NAB both switched from a hold after the September inflation figures and the RBA's Senate testimony on 28 October. Where they differ is what comes next.
Called the September CPI the last data point needed for a fifth hike this year, and said another rise early in 2027 looks more likely than not unless inflation clearly eases.
Base case is a hike on Tuesday, then a hold in December while the RBA takes time to assess.
Pointed out that about 45% of CPI categories are rising faster than 3% a year, and warned that not hiking would damage the RBA's credibility.
The Bigger Problem
Why rates are stuck high: productivity
Strip away the oil shock and there is a slower-moving problem underneath. Over the year to June the economy grew 2.1%, but hours worked grew faster, at about 2.4%, so output per hour actually fell 0.2%. Australia is growing by working more, not by working better.
That matters for rates because of how wages turn into prices. If pay rises 3.2% and each hour of work produces no more than last year, the cost of producing everything rises by about the same amount. Unit labour costs were up 3.6% over the year. Businesses pass that on, and underlying inflation stays stuck in the mid-3s instead of heading to 2.5%. With productivity growing 1–1.5% a year, the same pay rises would sit comfortably with inflation near target.
The RBA can't fix this, and Bullock has said as much: without productivity growth there is no lasting rise in real incomes, and productivity is outside what the Bank controls. All it can do is use rates to slow demand down to match a supply side that isn't growing fast enough. The longer productivity stalls, the higher rates have to stay to do the same job.
- Wage growth 3.2%
- Productivity growth −0.2%
- Labour cost per unit of output +3.6%
For inflation to settle at 2.5% with wages growing above 3%, output per hour has to grow by around 1% a year. It hasn't done that consistently for a decade.
The Turnaround
What has to change for rates to come down
Some of these move in months, some take years. Only the first two are likely to matter before the end of 2027.
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Oil and the Middle East Fastest
Fuel is up 9.4% over the year. A lasting resolution that brings energy prices down would take pressure off headline inflation within months. Westpac names it as the one thing that could change its call.
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Inflation prints turning 2–3 quarters
The RBA needs quarterly underlying inflation back around 0.6–0.7%, consistent with the 2–3% target, for several quarters in a row. One soft result won't be enough.
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Demand cooling to match supply Under way
Rising unemployment, falling house prices and slower spending are the rate rises working. It's painful, but it's what eventually lets the RBA stop and then cut.
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Housing supply Years
Housing is the biggest single contributor to inflation, up 5.2%. Building more homes faster, through planning, construction productivity and trades, eases rents and building costs.
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Productivity Years
Faster approvals, more competition, better skills, and turning the AI and energy investment boom into output rather than just spending. It won't move Tuesday's decision, but it decides how low rates can eventually go.
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Public demand Policy choice
Government spending and investment, federal and state, are a large share of demand. Slower growth there would share the load the RBA is currently carrying on its own.
So when does it turn? Our view is that Tuesday is the peak or one rise short of it. Three of the big four expect a pause after November; ANZ sees a real risk of 5.10% by February. If oil eases and inflation softens through the first half of 2027, a first cut is a late-2027 story. CBA has pencilled in cuts for August and November 2027, in line with earlier calls from AMP and William Buck. If productivity stays flat, any cuts will be shallow. This cycle is unlikely to take rates back to the lows of the early 2020s.
Your Repayments
The impact — what a move does to repayments
Monthly principal & interest repayment on a 30-year loan, shown against a representative variable rate before Tuesday's decision. The +0.25% column is what our call means; adjust the rate below to match a real scenario.
| Loan amount | −0.50% | −0.25% | At current rate | +0.25% | +0.50% |
|---|
Table amounts and shading update automatically if you change the current rate or term above. Your custom loan amount is highlighted as its own row.
Reality Check
Does a pay rise actually keep up?
A rate rise doesn't just cost more per month — it changes how much of every dollar in repayments goes to interest versus paying down the loan. This works out the pay rise needed to cover that extra interest over the next 12 months, properly accounting for the fact that the balance keeps shrinking either way.
Next Steps
Things to consider
- 01
Negotiate with your bank first
Existing customers are often quietly paying more than new customers get offered. A broker can do this on your behalf — the call alone can be the cheapest rate cut available.
Speak to a broker - 02
Get a full loan review
Not just the rate — the structure, offset usage, fixed/variable split and whether refinancing costs are worth it given where the cycle is headed.
Speak to a broker - 03
Check where the money's actually going
Run your real numbers through a budgeting tool before assuming a rate rise is unaffordable — often it's something else that's moved.
Try the budget analyser - 04
Look honestly at income, not just rates
If wage growth (3.2%) is already trailing inflation (3.6–4.3%), a rate rise on top is a real cut in what's left over — worth knowing before it shows up as missed repayments.
Archive
Earlier Rate Watch analysis
Sources: ABS, Consumer Price Index, Australia, September 2026 (released 28 Oct 2026); ABS, Labour Force, Australia, September 2026 (released 15 Oct 2026); ABS, International Trade in Goods, August 2026; ABS, Australian National Accounts, June quarter 2026 (2 Sep 2026) and Productivity Commission productivity update (Sep 2026); ABS Wage Price Index, June quarter 2026 (19 Aug 2026); RBA Governor Michele Bullock and Deputy Governor Andrew Hauser, Senate Economics Legislation Committee estimates (28 Oct 2026); Andrew Hauser at the Citi Investment Conference via ABC News (21 Oct 2026); ABC News and Australian Associated Press coverage of the September CPI, including Bloomberg and Global X market pricing and comments from KPMG, Betashares, AMP, the Treasurer and Shadow Treasurer (28 Oct 2026); CommBank Newsroom (19 and 28 Oct 2026); big four calls via Savings.com.au, "Big four unite: RBA to lift cash rate to 4.85%" (28 Oct 2026) and "RBA November rate hike expected, but will 4.85% be the peak?" (30 Oct 2026), Aussie (6 Oct 2026) and Switzer (Oct 2026); EY on unit labour costs (Sep 2026). Our call is our own reading of the data, not a guarantee. Repayment and salary calculations are simplified estimates for illustration only, use standard principal & interest amortisation, and are not financial advice — actual lender rates, fees and eligibility vary. Updated 2 November 2026; we'll update this page after the decision on 3 November.