RBA hikes to 4.85% on a split vote, then quietly drops its warning of more to come

The decision

The Reserve Bank of Australia raised its cash rate target by 25 basis points to 4.85 per cent, up from 4.60 per cent, with six board members voting for the increase and three voting to leave the rate unchanged. The decision is the board's response to inflation that remains elevated and broadly based, and to an outlook that has been revised materially higher in updated staff forecasts. m:…7046

The bank now expects inflation to stay above the top of its 2-3 per cent target range until late 2027. That longer wait is the central fact of the statement: a hike now is being paired with a forecast that says the job is not finished soon, even as the economy slows, housing prices have fallen significantly and the unemployment rate has risen. m:…7046

Why the board moved

The statement points to three pressures at once. Higher fuel and commodity prices are partly driven by the conflict in the Middle East, domestic capacity pressures are judged a little tighter than earlier thought, and AI-related investment is driving rapid growth in prices for technology-related goods. Growth in Australia's major trading partners has also been stronger than expected, because the boost from AI-related investment has outweighed the adverse effects of the Middle East conflict. m:…7046

Westpac's reading of the forecasts adds the other side of the ledger. The bank notes the RBA revised GDP growth forecasts down by 0.3 percentage points, to 1.3 per cent for 2027 and 1.5 per cent for 2028, lifted its unemployment forecast to a peak of 5.1 per cent by the end of 2028, and revised its estimate of the unemployment rate consistent with stable inflation up to 4.75 per cent. Weak productivity growth continues to constrain potential growth, the statement says, which means the economy can run hot on prices even while it cools on activity. m:…2428

Markets went into decision day with some relief on the inflation front. Westpac's morning report recorded Brent crude down 7.4 per cent to US$105 a barrel on renewed hopes for US-Iran diplomacy, global bond yields lower as falling oil prices eased inflation concerns, and the US 10-year yield down 4 basis points to 4.89 per cent. The ASX 200 fell 0.6 per cent on the day, while the Kospi rose 2.2 per cent on a rebound in chipmakers, a reminder that the same oil move was read differently across markets. m:…0880

What banks and markets read into it

The most consequential sentence may be the one that disappeared. Westpac notes the post-meeting statement omitted September's language about increasing the cash rate further if needed, and ING notes the statement dropped its reference to potential further hikes for the first time since June. Westpac reads the dissents together with that omission as confirming its view that the board will keep rates on hold in December, with February 2027 the next most likely timing for a hike should one eventuate. m:…2428

ING draws the same conclusion more bluntly, saying the statement is in line with its forecast of no further RBA hikes, and it keeps a year-end target of 0.710 for the Australian dollar against the US dollar. The implication for a banker is practical rather than theoretical: the hiking cycle's peak is now a live debate, not a scheduled event, and the December meeting will be read as a test of whether the board treats 4.85 per cent as the top. m:…7314

Macquarie Bank moved first on pass-through. It will increase variable home loan reference rates by 0.25 per cent a year and increase variable rates on transaction and savings accounts by 0.25 per cent, both effective from 19 November 2026. The bank notes it is again waiting more than two weeks before the home loan increase takes effect, and it points customers facing hardship to a specialist team, a detail that matters when a hike lands on households already facing falling housing prices. m:…0492

What stays unresolved

Two questions will decide whether the pause reading holds. The first is whether the December decision is swayed by the third-quarter national accounts, which Westpac flags as an open input, and whether firm-level inflation expectations cited in the bank's liaison program are validated. The second is the housing market itself: the RBA's own brief lists the exact extent and economic effects of the downturn in housing as uncertain, even as it reports that housing prices have fallen significantly. m:…2428 m:…7046

The tension to watch is the one the statement states plainly. Business investment is forecast to be stronger in the near term, including data centre-related investment, while the broader economy slows and unemployment rises further than the August forecasts expected. A board that hikes into that mix is betting that inflation expectations, not activity, are the binding constraint, and the split vote shows that bet is contested inside the room. m:…7046