The Reserve Bank has lifted the cash rate for the fifth time this year, and the split behind the decision matters as much as the move itself. Three of nine board members wanted to hold. With rates now at their highest since November 2008, the pressure shifts to Canberra, where the Treasurer is finalising a December budget update that must answer the question of whether Fiscal Policy is helping or hindering the Inflation fight.

What the RBA decided on Melbourne Cup Day

On Tuesday 3 November, the Monetary Policy Board raised the cash rate target by 25 basis points, from 4.60% to 4.85%.

According to the RBA's statement, six members voted for the increase and three voted to hold at 4.60%. It is a rare public signal that the board is divided on how far to push.

The cash rate of 4.85% is the highest since November 2008 and the fifth hike of 2026. Not every economist saw it coming: Bendigo Bank's David Robertson had tipped a hold, arguing the RBA "can pause in November".

Why the board still pulled the trigger

The RBA's reasoning was blunt. "Inflation remains elevated and recent data indicate that it is broadly based," the statement said.

The board also acknowledged the cost. "The economy is slowing, housing prices have fallen significantly and the Unemployment rate has risen," it said, flagging "uncertainties about the extent and economic effects of the downturn in the housing market."

Even so, it concluded that "a further tightening in financial conditions is warranted", and said it will "continue to do what it considers necessary to bring inflation sustainably back to target."

The outlook is the sticking point. The RBA said inflation "is now forecast to remain elevated through much of 2027", and is not expected to reach the top of the 2–3 per cent target range until late 2027. It also warned of a growing risk that higher inflation expectations become embedded.

Annual CPI inflation was 4.3% in September, according to the Treasurer's 28 October release on the latest figures.

The December budget update now carries more weight

The Mid-Year Economic and Fiscal Outlook, or MYEFO, is due in December, with no exact date announced.

The Expenditure Review Committee met on Monday 2 November and again on Tuesday, the morning of the rate decision. Treasurer Jim Chalmers did not say what savings the update would contain.

"We know that there is more work to do to make the budget as tight as it can be," he said. He also said a rate rise "will make things much harder", noting the full effect of earlier rises "hasn't been felt yet".

Prime Minister Anthony Albanese defended the government's record, saying, "My government has made savings in every single economic statement," and describing interest rates as a "blunt instrument".

Notably, the RBA statement does not mention fiscal policy. That leaves the argument over government spending and inflation to be fought out politically rather than settled by the central bank.

The political fight over spending and tax

The Coalition is pressing the spending line. Shadow Treasurer Tim Wilson blamed government spending for persistent inflation and said the Coalition would cut public service jobs where "bureaucracy exists and it's not serving a purpose".

Analysis published on 1 November found that policy decisions in the budget and the previous MYEFO added about $14 billion to spending across the current and last financial years. Mr Chalmers has said the decisions are a net "positive contribution over the four years". The same analysis found some Labor MPs privately want means testing and net savings in the update.

Relief measures such as energy rebates and fuel excise cuts are, according to that analysis, no longer part of the government's approach.

Property tax is also in the mix. Senator Andrew Bragg said on Tuesday that the Capital Gains Tax and negative gearing changes had "destroyed" confidence. Mr Chalmers backed Treasury's house price assumptions, saying they cover "the next couple of years, not the last couple of months".

Those changes are already law. From 1 July 2027, cost-base indexation plus a 30% minimum tax replace the 50% CGT discount for gains accruing from that date. Negative gearing is limited to new builds for properties bought after 7:30pm AEST on 12 May 2026, with existing holdings grandfathered.

What a 0.25 point rise means in dollars

Pre-decision estimates put the cumulative monthly repayment rise since February at $456 on a $600,000 Loan once a further 0.25 point hike is included.

Hypothetical example: Consider an investor with a $600,000 interest-only loan on a rental property bought before the May 2026 budget cut-off. A 0.25 percentage point rise adds $1,500 a year in interest, or $125 a month.

If that investor earns a Taxable Income in the 30% bracket and pays the 2% Medicare levy, the interest remains deductible under the grandfathered rules. The after-tax cost of the extra $1,500 is therefore about $1,020 a year.

This is a simplified illustration. Actual outcomes depend on the loan's terms, whether and when the lender passes on the change, and the investor's full tax position. At the time of writing, no lender had announced how or when it would pass on Tuesday's rise.

Some borrowers' repayment increases from the hike won't take effect until December.

Key dates to watch

Markets are already debating what comes next. CBA expects the cash rate to hold at 4.85%, followed by cuts in August and November 2027. ANZ sees "some risk" of a move to 5.10% in December or February. These are forecasts, not certainties.

  • 4 November: the RBA releases its Chart Pack.
  • 5 November: Deputy Governor Andrew Hauser delivers the Sir Leslie Melville Lecture at ANU.
  • 5–6 November: Senate committee hearings on the Tax Reform No. 3 Bill and the discretionary trust minimum tax bill, with a report due 13 November.
  • 9 November: Assistant Governor Sarah Hunter speaks at the UBS conference.
  • 25 November: the next monthly CPI release.
  • December: MYEFO, which will show whether the government chooses net savings.