Key Highlights

  • RBA Governor Michele Bullock says the Bank takes public Demand 'as a given'.
  • She refused to take sides in the spending debate after the rate rise.
  • The Coalition has blamed government spending for the rate increase.
  • Treasurer Jim Chalmers has blamed higher oil prices.

The Reserve Bank lifted the cash rate to 4.85% on Tuesday, and the argument over who is responsible started straight away. The Coalition blamed government spending. The government blamed the Middle East conflict. Governor Michele Bullock declined to take a side. "I don't tell them what to do with fiscal policy," she told reporters. Her answer matters because the government's December budget update will be judged partly on whether it eases pressure on inflation.

Exactly what Bullock said

At her press conference on 3 November, Bullock was asked whether government spending was contributing to Inflation and therefore to higher interest rates.

She acknowledged the arithmetic. "In a mathematical sense, yes, it's true that public demand is part of the total," she said, referring to Aggregate Demand in the economy.

She then repeated a position she has taken before: "I've said a number of times in the past that we take public demand as a given and we set interest rates accordingly."

And she drew a clear line between the two roles: "I don't tell them what to do with fiscal policy. They don't tell me what to do with interest rates."

Explainer: how monetary and Fiscal Policy fit together

The exchange reflects how responsibility is divided in Australia.

  • Monetary policy is set by the RBA's Monetary Policy Board, which is independent of government. Its main tool is the cash rate, and its target is inflation of 2–3%.
  • Fiscal policy covers taxing and spending decisions. It is set by the elected government through the budget, which Parliament must pass.
  • The RBA forecasts how the economy will evolve, including the path of government spending, and sets rates against that outlook.

Treating public demand "as a given" does not mean it has no effect. It means the RBA does not try to steer the government's choices. If public and private demand together run ahead of what the economy can supply, the Board responds through interest rates, whatever the source of that demand.

That is why both sides of politics can draw something from Bullock's comments. The Opposition can point to her acknowledgement that public demand counts. The government can point to her refusal to single it out.

The political fight she stayed out of

Shadow Treasurer Tim Wilson argued before the decision that government spending was behind persistent inflation. "Underlying inflation lifted above the RBA's target band in July of last year," he said on Tuesday morning, according to reports.

Treasurer Jim Chalmers took a different view. In his statement after the decision, he said "budgets aren't the primary driver of prices in the economy, but responsible economic management plays a helpful role". He pointed to oil prices that he said had "hovered higher than $110 in recent weeks", against an assumption of around $81 in the RBA's August forecasts.

Bullock rejected a purely oil-based explanation as well. "We are not tightening monetary policy because of the direct impact of oil prices on inflation," she said. She said domestic capacity pressures were already present before the Middle East conflict, and that "investment has been much stronger than expected, including due to data centre-related investment".

A split board and an uncertain path

The decision was not unanimous. Six Board members voted to raise the cash rate from 4.60% to 4.85%, and three voted to hold.

Bullock said the three who voted to hold gave more weight to downside risks, including a housing downturn and rising unemployment, and wanted to wait for more data.

She offered no guidance on what comes next. "I don't know what the next move will be," she said, adding that there was "still a bit of a skew on the upside to inflation risks".

She also addressed Recession fears directly: "We are not looking to tip the economy into recession if we can avoid it."

The RBA's statement said inflation is expected to stay elevated "through much of 2027". It does not expect inflation to fall to the top of the 2–3% target band until late 2027, about three quarters later than it previously forecast. Unemployment is now projected to rise further than the August forecasts showed.

Market economists read the decision differently, according to reports.

  • Betashares expects another increase, with a February 2027 hike its base case.
  • CBA, before the decision, forecast a hold after this rise and cuts from August 2027.
  • Capital Economics said the RBA was "done tightening".
  • UBS described the statement as "clearly dovish".

The range of views reflects how finely balanced the Board's own vote was.

For households, the immediate effect is already showing up. according to reports, Macquarie was the first lender to pass on the full 0.25 percentage point increase, effective 19 November. Canstar estimates the average owner-occupier variable rate will rise to 6.74%.

Why the budget update still matters

Bullock's neutrality does not take the budget out of the debate. Because the RBA treats public demand as a given, any change in the government's spending plans will feed into its next set of forecasts.

Chalmers has promised that "there will be more savings in the mid-year budget update in December". Finance Minister Katy Gallagher has declined to say whether the government will aim for net savings overall.

If the update cuts spending growth, the RBA could Factor that in. If new spending outweighs savings, the Board will factor that in too. Either way, the decision on rates stays with the Board. Bullock made that point herself late in the press conference, saying "the board makes the decision", rather than any individual official.

What to watch

  • MYEFO in December: whether new savings outweigh new spending over the forward estimates. No exact date has been published.
  • The RBA's next decision: Bullock has not ruled any option in or out, and the Board's vote shows a real split.
  • Monthly CPI and labour force data: the three members who voted to hold were concerned about unemployment, so rising unemployment would strengthen their case.
  • Senate estimates and parliamentary scrutiny: further questions to the Governor on the fiscal–monetary relationship are likely when she next appears before Parliament.