Key Highlights

• The Board judged that a further tightening in financial conditions is warranted.

• Financial conditions are described as restrictive, but with various cross-currents.

• Housing prices and bond yields point to tightness, while Business Credit is encouraging.

• Unemployment reached 4.6% in the September quarter.

The Reserve Bank's November forecasts pair a gradual rise in joblessness and subdued growth with a slow return of Inflation to target, and the bank has been open that the adjustment carries a cost.

On 3 November 2026, Reserve Bank of Australia Governor Michele Bullock used a word central bankers tend to handle carefully: pain. Explaining why the Monetary Policy Board had lifted the cash rate target by 25 basis points to 4.85 per cent, she said: "Some pain now will prevent even worse pain down the track."

That sentence goes to the heart of a question many Australians are asking. If the RBA's own forecasts show Unemployment rising and growth slowing, is that simply the price of bringing inflation down? The bank's November 2026 Statement on Monetary Policy offers a way to answer it, at least in terms of what the RBA itself expects.

What the forecasts show

Start with the three numbers the RBA forecasts most prominently: growth, unemployment and inflation.

Year-ended GDP growth is projected to slow from 2.1 per cent in June 2026 to 1.6 per cent in December 2026 and June 2027, then to 1.3 per cent in December 2027 and June 2028, before recovering to 1.5 per cent in December 2028. The Economic Conditions chapter notes that growth "has slowed this year to a little below its potential growth rate".

The unemployment rate, which averaged 4.6 per cent in the September quarter, is forecast to rise to 4.7 per cent by December 2026, 4.9 per cent by December 2027 and 5.1 per cent by December 2028. The Overview says it "is forecast to rise to a bit over 5 per cent by end-2028."

Inflation moves the other way, after a near-term peak. Headline CPI inflation was 3.9 per cent over the year to the September quarter, and trimmed mean inflation, the RBA's underlying measure, was 3.7 per cent. The monthly CPI indicator, a different headline gauge, showed 4.3 per cent in the September month. The bank expects headline inflation "to peak at 4.5 per cent in the December 2026 quarter", then fall to 2.7 per cent by December 2027 and 2.4 per cent by December 2028. Trimmed mean is forecast at 3.5 per cent in June 2027, 2.9 per cent in December 2027 and 2.4 per cent in December 2028.

Read together, those paths describe an economy that cools gradually while inflation retreats.

How tighter policy is meant to work

The logic connecting these forecasts is the transmission of monetary policy. A higher cash rate raises borrowing costs and tightens financial conditions more broadly. That tends to restrain spending and investment, which eases Demand across the economy. Slower demand reduces pressure on prices, and over time on the labour market.

The Board's statement made the intent explicit: "the Board judged that a further tightening in financial conditions is warranted". The RBA's Financial Conditions chapter describes current conditions as "restrictive, but with various cross-currents". Among those cross-currents: "housing prices have declined by more than expected", while business credit growth remains very encouraging. Australian Government Bond yields have increased and sit "around their highest levels in many years".

The forecasts assume a cash rate path drawn from market pricing that "increases by 35 basis points by mid-2027, before declining a little to stabilise at 4.8 per cent in 2028."

Why not simply wait?

A fair question is whether the RBA could accept higher inflation for longer to avoid the economic cost. The Governor's answer was that delay risks a worse outcome. "It is critical that we stop expectations for high inflation from becoming embedded in price-setting decisions", she said.

The concern is that if businesses and workers come to expect high inflation to persist, they set prices and wages accordingly, making inflation harder to dislodge. Deputy Governor Andrew Hauser touched on this in his 5 November lecture, citing a Macquarie University business survey in which firms expecting a faster return to target planned to pass on less of their Middle East conflict-related costs. Expectations, in other words, shape behaviour.

Bullock said: "we are not tightening monetary policy because of the direct impact of oil prices on inflation." She added: "Monetary policy cannot impact global oil prices." The Outlook notes that the assumed oil price for the December quarter is "35 per cent higher than assumed in August". The worry is about the second-round effects on broader price-setting, not the oil price itself.

Is the price high?

Whether the cost is large is a matter of judgement, and the Board itself was divided. Six members voted to increase the cash rate and three voted to leave it unchanged at 4.60 per cent.

Some context helps. Hauser noted that the misery index, which adds inflation and unemployment together, is only a little above its 15-year pre-COVID average. He also recalled far harsher times: Australian GDP fell nearly 7 per cent in 1931 and unemployment reached nearly 30 per cent in 1932. The current forecasts describe a gradual softening, not a collapse.

The Financial Stability Review of October 2026 also found most households in a reasonable position. The share of variable-rate owner-occupier borrowers with a cash-flow shortfall "remains relatively low at around 2 per cent", and the median borrower can cover "over a year of scheduled Mortgage payments at current interest rates" from buffers.

Still, the costs are not evenly shared. A rising unemployment rate means more people looking for work, and higher interest rates weigh most on those with large debts.

The bottom line

On the RBA's own forecasts, slower growth and a gradual rise in unemployment to a bit over 5 per cent by end-2028 accompany a return of inflation towards target. The bank frames that softening as the cost of preventing high inflation from becoming entrenched, with Governor Bullock arguing that "Some pain now will prevent even worse pain down the track." The Board was split six to three on the latest move, showing that the size of the trade-off is contested. Its next decision is due at 2.30 pm on 8 December 2026.