The Reserve Bank now expects the economy to grow by just 1.3% over the year to December 2027, down from 1.6% in August, as higher interest rates and a falling housing market take their toll.

Central banks rarely say outright that they want the economy to slow. The Reserve Bank's November 2026 forecasts come close. Buried in the Statement on Monetary Policy (SMP) table is a revision that captures the cost of the Inflation fight: GDP growth over the year to December 2027 is now forecast at 1.3%, compared with 1.6% in the August Statement.

That downgrade sits alongside the Monetary Policy Board's 3 November decision to lift the cash rate target by 25 basis points to 4.85%, effective 4 November. The six to three vote, with three members preferring to hold at 4.60%, delivered the fifth increase of 2026 and took cumulative tightening this year to 125 basis points.

A tale of two revisions

The growth forecasts were not cut across the board. In fact, the near term was revised up. The figures below are year-ended GDP growth forecasts, with August in brackets:

  • June 2026: 2.1% (1.9%)
  • December 2026: 1.6% (1.4%)
  • June 2027: 1.6% (1.5%)
  • December 2027: 1.3% (1.6%)
  • June 2028: 1.3% (1.6%)
  • December 2028: 1.5% (1.8%)

The near-term upgrades are consistent with activity holding up better than expected. The decision statement noted that Business investment, including data centres, is stronger in the near term, and the September minutes recorded business Investment up more than 10% over the year.

From late 2027 the picture flips. Growth forecasts for December 2027, June 2028 and December 2028 were each cut by 0.3 percentage points. The economy is now expected to grow more slowly for longer.

These are forecasts, built on assumptions including a market-based cash rate path averaging 4.9% in 2026/27 and 4.8% in 2027 and 2028. They are not predictions the RBA is committed to.

What is dragging growth down

The decision statement and SMP are explicit about the causes. The SMP says: "Tighter monetary policy alongside a weaker outlook for the housing market is expected to keep GDP growth below trend." The decision statement adds: "Higher interest rates and falls in housing prices and turnover are expected to weigh on growth".

Housing has turned. The statement says "housing prices have fallen significantly". Governor Michele Bullock told the Senate Economics Legislation Committee on 28 October that "Housing prices have fallen in most Capital cities and new housing loans have declined." She also noted that housing prices remained around 50% above early 2020 levels, and stressed that "monetary policy does not target housing prices."

Lower productivity is another Factor in the outlook. Deputy Governor Andrew Hauser said on 21 October that the RBA had cut its underlying productivity growth assumption from 1% to 0.7%. Slower productivity growth means the economy's sustainable pace of expansion is lower.

The RBA is not hiding the intent. Hauser told a Citi conference in Sydney: "We need a period of below-trend growth to bring inflation down, and we're seeing that happening."

The logic is that the economy is currently trying to do too much. According to the SMP, "The economy is currently operating with excess Demand and is judged to reach balance next year". Slower growth is the mechanism for closing that gap and easing price pressures. Inflation remains well above target: monthly headline CPI was 4.3% year-ended in September 2026, while the trimmed mean measure of underlying inflation was 3.7% year-ended in the September quarter.

The statement makes the trade-off plain: "The Board is conscious of the period in which inflation has been too high." It also warned that "there is an increasing risk that higher inflation expectations will become embedded."

The jobs side of the ledger

Slower growth has consequences for employment. The SMP forecasts Unemployment rising to 4.9% by December 2027 and 5.1% by December 2028, up from 4.7% and 4.8% respectively in August. The decision statement says "the unemployment rate is projected to rise by more than expected in the August forecasts". At the same time, employment itself is still expected to keep growing.

Hauser acknowledged the cost directly: "No lost Job is one to celebrate."

Assistant Governor Sarah Hunter, speaking in an interview aired on 25 October, emphasised that the aim is a gradual slowdown rather than a slump: "We're not trying to achieve a sharp stop or a really big downturn or anything like that." On recession, she said: "We don't see any signs of that yet in any of the data that we track."

Risks around the forecast

The 1.3% figure is a central estimate, and the RBA has said uncertainty is heightened. Its scenarios include outcomes where inflation is higher and activity weaker than the central case. The SMP's energy assumption — that prices decline from elevated levels — may not hold if shipping and refining disruptions persist.

On the other hand, Bullock noted that "The impact of the conflict in the Middle East on economic activity has been relatively modest so far."

The Board did not commit to any particular path for rates. It said only that it "will continue to do what it considers necessary to bring inflation sustainably back to target." The next decision is at 2.30 pm on 8 December 2026, with the monthly CPI due on 25 November.

The bottom line

The cut in the end-2027 growth forecast from 1.6% to 1.3% is the clearest statement of what the RBA expects tighter policy to cost. Near-term growth has held up better than expected, helped by business investment, but higher interest rates and the housing downturn are forecast to keep growth below trend through 2027 and 2028, with unemployment rising to 5.1% by late 2028. The RBA views that as the price of returning inflation to target; the forecasts themselves remain subject to change. Readers considering what slower growth means for their household or business can consider speaking with a licensed adviser or their lender.