Key Highlights

  • The market-derived technical cash rate assumption in the August forecasts peaked at 4.5% in June and December 2027, while the actual target is now 4.60%.
  • Those forecasts were finalised on 5 August, before the September rise, and had the trimmed mean falling from 3.6% in June 2026 to 2.4% in 2028.
  • The gap is not a guide to future decisions; Bullock said she is not going to give forward guidance.

The cash rate assumption underpinning the Reserve Bank's August forecasts never rose above 4.5%, yet September's increase has already taken the actual rate to 4.60%, underlining how quickly the outlook shifted after those forecasts were finalised.

Forecasts age quickly when the economy moves. The Reserve Bank of Australia's (RBA) August 2026 Statement on Monetary Policy set out projections for growth, jobs and inflation through to the end of 2028. Each of those projections rested on an assumed path for the cash rate. Less than two months later, the actual cash rate has moved beyond the highest point on that path.

On 29 September 2026, the Monetary Policy Board lifted the cash rate target by 25 basis points to 4.60%, effective 30 September. It was the fourth increase of 2026. The August forecasts, by contrast, were finalised on 5 August, before the September rise, and their cash rate assumption topped out at 4.5%.

Reading the assumption row

The cash rate assumption in the August Statement on Monetary Policy ran as follows, by period:

  • June 2026: 4.3%
  • December 2026: 4.4%
  • June 2027: 4.5%
  • December 2027: 4.5%
  • June 2028: 4.4%
  • December 2028: 4.4%

Set against that path, the current 4.60% cash rate target is 0.2 percentage points above the 4.4% assumed for December 2026, and 0.1 percentage points above the 4.5% peak assumed for mid-2027 and late 2027. It is above every figure in the row.

The assumed path also contained a gentle easing in 2028, falling back from 4.5% to 4.4%. The actual cash rate has instead moved higher and sooner than the path described.

What the forecasts were designed to deliver

The cash rate assumption is the backdrop against which the RBA's August inflation forecasts were prepared. Those forecasts showed a slow return to target.

Underlying inflation, measured by the trimmed mean, was forecast at 3.6% in June 2026, 3.3% in December 2026, 3.0% in June 2027, 2.6% in December 2027 and 2.4% in both June and December 2028. The text of the Statement said the trimmed mean was expected to stay at 3.0% in June 2027 and decline to "the midpoint of the 2–3 per cent target range in 2028".

Headline CPI was forecast at 3.9% in June 2026, 3.6% in December 2026 and 2.8% in June 2027, before reaching 2.4% in 2028. The Statement said headline inflation was forecast to return to the 2–3% range by Mid-2027, then sit "at or a little below the midpoint of the inflation target throughout 2028."

Other forecasts shared the same assumptions. GDP growth was forecast at 1.4% over the year to December 2026, and the unemployment rate at 4.5% in the December quarter of 2026, edging up to 4.8% by 2028.

What has shifted since 5 August

Several developments after the forecasts were finalised help explain why the Board moved beyond the assumed path.

The Board's statement on 29 September said "some of the upside risks flagged in August are materialising." In paraphrase, it listed a broader Middle East conflict, higher global energy prices and AI-related demand pushing up technology goods prices, along with higher fuel costs spreading to other goods and services.

The minutes of the 28–29 September meeting add specifics. July monthly CPI was stronger than expected, particularly for market services. Domestic petrol and diesel prices in August were 13% higher than forecast. Developments "pointed to an increase in the risk of persistently elevated inflation."

The most recent headline figure is also higher than the nearest forecast points. Headline CPI was 4.0% over the year to August 2026 on the monthly measure, compared with the 3.9% forecast for June 2026 and 3.6% for December 2026. Underlying inflation, by contrast, matched the forecast for June: the trimmed mean was 3.6% over the year to the June quarter of 2026. Governor Michele Bullock said underlying inflation had been running at "about 3.5 per cent for the past six months", or "a percentage point above our target".

The labour market picture is more mixed. The unemployment rate rose to 4.6% in August, alongside higher participation, compared with the 4.5% forecast for the December quarter. Even so, the Board's statement said "Labour market conditions have eased broadly as expected in recent months", and the minutes caution that "considerable caution is warranted when interpreting the current official labour force data."

The minutes also note that the Board judged the previous 4.35% cash rate might be less restrictive than two years earlier if the neutral rate had risen, a consideration that also bears on how the assumed path should be read.

Why the gap matters, and what it does not mean

The difference between 4.60% and an assumption that peaked at 4.5% is a useful illustration of how quickly the RBA's thinking evolved over a short period. A path finalised in early August no longer described where the cash rate stood by the end of September.

What the gap does not provide is a guide to future decisions. Bullock was explicit: "I'm not going to give you forward guidance." She said the Board "will increase interest rates again if that's what's needed to get inflation down", and acknowledged, "Will it be enough? I don't know."

The minutes record that the Board will consider "increasing the cash rate target further if required." Market pricing at the time of the meeting, as described in the minutes, implied about 15 basis points more by year-end and a further 30 basis points in the first half of 2027. These are market expectations, not RBA forecasts.

It is also worth remembering what the forecasts themselves represented. They were the RBA's best judgement at a point in time, conditioned on assumptions that included the cash rate, oil prices and the exchange rate. The Brent oil assumption, for instance, was US$81.2 a barrel for December 2026. When conditions change, the forecasts and their assumptions become a historical reference rather than a live projection.

The bottom line

The August Statement on Monetary Policy, finalised on 5 August, assumed the cash rate would peak at 4.5%. The September decision has already taken the cash rate target to 4.60%, above every point on that path. Readers using the August forecasts should keep in mind that they were prepared before the September rise and before the upside risks the Board later cited had materialised. The next cash rate decision is scheduled for 2.30 pm on 3 November 2026.

The cash-rate path used in the August forecasts was a technical assumption based on market pricing as at 5 August 2026. It was not the RBA Board’s forecast or commitment about future policy decisions.