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On Tuesday (3 November), the Reserve Bank of Australia (RBA) announced that it was raising the cash rate from 4.60 per cent to 4.85 per cent.
The 25 basis point increase on Melbourne Cup Day marked the fifth hike delivered this year, driving borrowing costs to an 18-year high.
While the increase to the cash rate had been largely expected by the market, the central bank’s post-meeting statement showed that the Monetary Policy Board had been split on the move. Six members voted to increase the cash rate target by 25 basis points to 4.85 per cent, while three members voted to leave the cash rate target unchanged at 4.60 per cent.
The split, and the updated Statement on Monetary Policy released by the RBA, has led major bank economists to firm up expectations that the RBA will pause in December.
While the RBA reiterated deep concern that inflation remains broad-based and warned of an increasing risk that higher price expectations could become embedded, economists noted that the board’s rhetoric has shifted in crucial ways.
Notably, the board dropped previous forward guidance explicitly citing further rate increases while openly acknowledging that domestic economic growth is slowing, house prices have declined, and the unemployment rate is drifting higher.
Coupled with a 6–3 divided vote among board members, Australia’s major banking institutions are now aligning on the view that monetary policy has reached deeply restrictive territory, arguing that the bar for another move before the end of the year is unlikely - but risks remain high.
ANZ: Terminal rate likely reached, December pause ahead
ANZ’s economics team believes the RBA is now at, or very close to, the cash rate peak and is forecasting that the board will sit on its hands in December. However, ANZ suggested upside risks still remain.
Adam Boyton, head of Australian Economics at ANZ, said on Tuesday that the bank had identified four markers to guide its thinking beyond November. “Across those four markers, the split vote suggests some reluctance on the part of the board to keep tightening while the revision to the RBA’s estimate of the NAIRU (now 4.75 per cent from 4.6 per cent previously) is not that large,” Boyton said.
“The RBA’s inflation forecasts are higher over 2027 than we expected, and the RBA is concerned that some measures of inflation expectations have risen. The risks around the inflation forecasts are ‘skewed to the upside’.
“In our view, we are at, or close to, the cash rate peak and we are not forecasting another increase. We acknowledge there is a risk of a rate hike in December (or less likely February) should further evidence emerge of inflation expectations moving higher, and/or if upside risks to inflation materialise.”
Boyton added: “We suspect the risks might be skewed to marginally lower outcomes, while the recent trend in the unemployment rate might see the RBA’s forecast peak of 5.1 per cent reached sooner than it expects. That is, our expectations of the data flow relative to the RBA’s forecasts would also tend to support no further cash rate increases.”
NAB: Policy in restrictive territory, RBA on hold
National Australia Bank’s economics and markets research team also confirmed on Tuesday afternoon that it expects the RBA to remain on hold in December, pointing to evidence that monetary settings are now biting hard into economic activity.
NAB’s chief economist, Sally Auld, and senior economist Taylor Nugent highlighted that while the broader statement reads as hawkish on inflation, several developments deliberately temper that tone.
The RBA update from the NAB economics and research team reads: “First, there were three dissents to today’s decision. This is only the fourth time that the decision of the Monetary Policy Board has not been unanimous, and we learnt in the press conference that this was not an argument around timing, but rather about different weighting given to upside risks to inflation vs downside risks to growth,” they noted.
“Second, unlike the prior month, where the statement noted that ‘The board will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed’, the second part of this sentence was omitted in November.
“Third, the commentary on the domestic economy appears more willing to acknowledge recent developments on the activity side, including the line that ‘The economy is slowing, housing prices have fallen significantly and the unemployment rate has risen.’”
Auld and Nugent argued that the board is now comfortable that policy is restrictive: “The spread between the current cash rate and the average neutral rate of the RBA’s eight models is around 145 bps. This is one of the highest spreads in 30 years, excluding the pre-GFC tightening cycle ... All else equal, this set up probably argues for a near-term pause.
“While we are not forecasting further policy tightening from here, there is little doubt the RBA will be sensitive (and responsive) to any upside surprise in inflation in coming months.”
CBA: RBA done but on edge, December pause ahead
Commonwealth Bank of Australia’s economics team expects the RBA to sit on hold in December following Tuesday’s 25 basis point increase, concluding that while the central bank is likely done hiking, policymakers will remain deeply “on edge” heading into 2027.
In an Economic Insights report released following the November rate decision, CBA noted that the 6–3 split vote and back-to-back moves have positioned the board to pause and assess the pipeline of tightening already delivered:
“Looking ahead we see the RBA on hold in December after back-to-back hikes and the split vote,” CBA’s economics team said.
“Five interest rate hikes over 2026 now mean the cash rate sits at its highest level since 2008 and is 50 bp higher than the peak reached in November 2023. The economy is slowing, we see growth troughing at 1.0 per cent per year in mid-2027 and home prices are expected to record the largest downturn since monthly data has been compiled.”
CBA highlighted that the 6–3 split vote revealed emerging fears among dissenting members that the economy’s “breaking point” is nearing, while the removal of explicit tightening bias from the post-meeting statement gives the board room to pause and assess incoming data.
Although stubborn inflation expectations, global energy shocks and weak productivity keep the threat of a 2027 hike alive if inflation flares again, CBA’s economics team said it anticipates a sharper domestic slowdown will eventually allow the RBA to deliver two rate cuts in late 2027, taking the cash rate down to 4.35 per cent.
Westpac: Likely peak reached, pause in December to ‘take stock’
Westpac’s economics team also confirmed that the November increase likely marks the ceiling of this tightening cycle, with the bank sticking to its base case that the RBA will pause to assess conditions in December.
In a post-meeting update, Westpac chief economist Luci Ellis suggested that the split vote and a softening in official guidance signalled that a December pause is firmly on the cards.
“Because the RBA assesses the risks to the inflation outlook to still be skewed to the upside, the outlook for coming meetings will still be for a decision between holding and hiking. But we note that the post-meeting statement omitted September’s language, ‘including increasing the cash rate target further if needed’ from the commitment to do what is necessary to get inflation down,” she said.
Ellis also highlighted the commentary from governor Michele Bullock following the meeting, flagging that the governor commented that after five hikes, this was probably a good time to “take stock”.
“Together with the dissents, we read this as confirming our current view that the [monetary policy board] will keep rates on hold in December.
“There is also considerable data flow between now and then, which could go either way, including the Q3 national accounts,” she said.
“Similarly, a lot could happen between now and February, but we see it as the next most likely timing for a hike, should one eventuate. We still see that as a risk rather than a base case.”
[Related: RBA spurred into action on rate day]
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