Key Highlights

  • The RBA aims for inflation in the 2–3 per cent range, with 2.5 per cent as the reference point, while balancing full employment.
  • The Board has some flexibility on how quickly it returns inflation to target.
  • With inflation above target and the labour market judged slightly tight, four rate rises this year show the inflation side has carried more weight.

The Reserve Bank's goal is not only low inflation: its leaders say they are also weighing full employment, and that trade-off is shaping how quickly they aim to bring prices back to target.

Ask most people what the Reserve Bank of Australia (RBA) does and they will probably say it fights inflation. That is true, but it is only half the story. When Governor Michele Bullock set out the central bank's objectives to the Senate Economics Legislation Committee on 28 October 2026, she described an aim of returning inflation to the 2–3 per cent target range, with the midpoint as reference, while allowing some flexibility on timing to balance full employment.

That qualification matters. It means the Monetary Policy Board is not trying to crush inflation at any cost. It is trying to bring inflation down while keeping as many Australians in work as possible. With the Board meeting on 2–3 November and its decision not yet made, it is worth understanding how those two goals interact.

Two goals, one main lever

The RBA's mandate can be summarised in two parts, as the Governor described them to senators:

  • Price stability: inflation within the 2–3 per cent target range, with 2.5 per cent, the midpoint, as the reference point.
  • Full employment: the Board retains some flexibility on how quickly it returns inflation to target, so it can balance that goal against supporting employment.

Underpinning both is a broader purpose. Speaking at the University of New England graduation ceremony in Armidale on 23 October 2026, in an address titled "Purpose, Perspective and Possibility", Governor Bullock said: "Parliament has charged us with promoting the prosperity and welfare of the Australian people". She told graduates: "the work of the RBA is about people."

The difficulty is that the RBA has essentially one main lever to pull: the cash rate target. Raising it tends to slow demand and inflation, but it can also slow hiring. Assistant Governor (Economic) Sarah Hunter put the trade-off plainly in her 60 Minutes interview, broadcast on 25 October 2026: "there's no painless tool, but this tool does work, and that's why we use it."

Why timing is the pressure valve

The "flexibility on timing" the Governor referred to is how the Board reconciles the two goals in practice. If it tried to return inflation to target very quickly, it might need to raise rates sharply, with a larger risk of job losses. A more gradual path lowers that risk, but leaves inflation above target for longer.

The RBA's recent projections show how that choice plays out. The Governor told senators the August Statement on Monetary Policy projected inflation returning to the midpoint only in late 2027, with risks skewed to the upside. She then added: "Inflation will therefore likely be higher than was our base case in August." Her reasoning was that "global energy prices are now much higher than had been assumed in the August forecasts".

There is a limit to how much patience the Board says it can afford. The Governor warned senators: "But we can't allow high inflation to persist." At her 29 September media conference, she said: "It's critical that we stop expectations for high inflation from becoming embedded in price-setting decisions". She also told senators short-term inflation expectations are elevated. If people come to expect high inflation, it can become self-reinforcing, which would ultimately make the task harder for both inflation and jobs.

Reading the scales right now

On one side of the ledger is inflation. The Australian Bureau of Statistics (ABS) reported on 28 October that headline CPI rose 4.3% in the 12 months to September 2026, up from 4.0% in August. The trimmed mean, the RBA's preferred measure of underlying inflation, was 3.6%, up from a revised 3.5%. Both are above the top of the target band.

On the other side is employment. At her 29 September media conference, the Governor said "the unemployment rate has risen from 3.5 per cent over the past couple of years to 4.6 per cent", while describing it as "still quite low historically". Before senators, she noted the unemployment rate had recently risen "a little more than we had expected", but said the labour market appears slightly tighter than previously judged and the share of the population with a job remains high.

When the labour market is judged to be at or beyond full employment, the two goals pull less against each other. A slightly tight market, alongside inflation well above target, suggests the employment side of the mandate is not currently the binding constraint. That helps explain why the Board has lifted the cash rate four times in 2026, a cumulative 100 basis points, to 4.60 per cent.

Even so, the RBA has signalled that protecting jobs remains part of its thinking. Assistant Governor Hunter said: "We're not trying to achieve a sharp stop or a really big downturn or anything like that." Asked about recession, she said: "We don't see any signs of that yet in any of the data that we track."

What would shift the balance

The Board's September statement said it would be "attentive to the data and the evolving assessment of the outlook and risks", including "increasing the cash rate target further if needed". It also noted: "The three increases in the cash rate target since the beginning of the year have tightened financial conditions", referring to the rises before September's.

Several developments could alter the weighting between jobs and inflation. A faster rise in unemployment would give the full employment objective more weight. Persistent underlying inflation, or further increases in inflation expectations, would push the other way. The Governor also told senators the full effects of recent rate rises are yet to be felt, so some of the slowing in the labour market may still be ahead.

The Board will publish its decision and a new Statement on Monetary Policy, with fresh forecasts, at 2.30 pm (AEDT) on 3 November. The outcome has not been decided, and the Governor has said: "I'm not going to give you forward guidance."

The bottom line

Full employment is part of the RBA's mandate, and the Governor has made clear the Board uses flexibility on timing to balance it against inflation. At present, with inflation above target on both headline and underlying measures and the labour market still judged slightly tight, the Board's four rate rises this year show the inflation side has carried more weight. But the balance is not fixed. Each new set of jobs and price data feeds into the Board's judgement, and the next test of that balance comes on 3 November.