Is the Hiking Working? What the RBA Says Five Rises Have Done So Far

Sonal Goyal

04 November 2026 05:13 PM AEDT

Is the Hiking Working? What the RBA Says Five Rises Have Done So Far

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Key Highlights

The RBA says its 125 basis points of tightening have tightened financial conditions.
The economy is slowing and home prices have fallen since the rate rises began.
Inflation remains broadly based, which is why the Board raised rates again.
The effects of earlier rises may still be working through the economy.

Any Central Bank that raises rates five times in one year will be asked whether it is working. The Reserve Bank of Australia's answer, in its 3 November statement and its November Statement on Monetary Policy (SMP), has two parts. The policy is having effects on the economy. But the RBA does not think Inflation has turned yet, and it is unsure how restrictive its settings really are.

The Monetary Policy Board lifted the cash rate target to 4.85 per cent, effective 4 November 2026. This followed rises that took effect on 4 February, 18 March, 6 May and 30 September. Taken together, the cash rate is 125 basis points higher than at the start of the year.

The transmission evidence: what has moved

The Board's statement is direct about the first link in the chain: "The increases in the cash rate target since the beginning of the year have tightened financial conditions." The SMP adds that the Board judges financial conditions to be restrictive, and notes that government bond yields are at multi-year highs.

There are signs of this in the real economy too, according to the RBA:

Growth. "The economy is slowing," the statement says. The SMP notes that GDP growth has slowed, with household consumption a key drag. GDP grew 0.4 per cent in the June quarter.
Households. Household consumption rose 0.4 per cent in the June quarter and 1.8 per cent in year-ended terms. The RBA has revised its consumption outlook lower.
Housing. The statement says "housing prices have fallen significantly". The SMP puts the fall at about 5 per cent from the March peak. The economic conditions chapter puts national prices 4.7 per cent below their peak in September.
Labour market. Unemployment was 4.7 per cent in September 2026 and averaged 4.6 per cent in the September quarter, above the 4.4 per cent the RBA forecast in August.

Not everything has slowed. Activity this year has been somewhat stronger than expected, helped by data centre investment. The RBA also says "employment growth held up in the September quarter as expected." Part of the rise in unemployment reflects more people joining or staying in the labour force: the participation rate was 66.9 per cent in the September quarter, above the RBA's expectations.

Credit is also still growing: September's Financial Aggregates showed total Credit up 8.4 per cent over the year.

The inflation evidence: what has not moved enough

The main reason for the latest rise is that inflation has not yet responded the way the Board wants. The Monetary Policy Board's statement said: "Since the previous meeting, the data have confirmed that underlying inflation remains broadly based."

It is important to separate the measures. In the September quarter, headline CPI inflation was 3.9 per cent in year-ended terms, unchanged from the June quarter. Trimmed-mean (underlying) inflation was 3.7 per cent over the year. The trimmed mean rose 1.0 per cent in the quarter, which was faster than the 0.8 per cent increase in the June quarter. Separately, the monthly CPI showed headline inflation of 4.3 per cent in the year to September 2026.

Higher energy prices linked to the Middle East conflict have added to pressures, and the RBA has revised its inflation outlook "materially higher".

So, by the RBA's account, the tightening has reached financial conditions, spending and housing, but underlying price pressures are still broad. That gap explains why six of the nine Board members voted to raise the rate again. The statement records three members voting to leave the cash rate at 4.60 per cent, without giving reasons for the minority view.

Why the Board is not declaring success, or failure

The RBA admits it does not know exactly how tight its policy is. The SMP describes financial conditions as restrictive, "though extent uncertain". It also says uncertainty about spare capacity cuts both ways. Pressures may be understated, or labour Supply may be stronger than assumed, which could push unemployment higher.

The majority said "there is an increasing risk that higher inflation expectations will become embedded." and that "a further tightening in financial conditions is warranted to support the return of inflation to target." the Board is not saying the earlier rises failed. It is saying that, at the November meeting, the majority did not think they were enough.

The RBA's forecasts show the delay involved. On its November forecasts, headline CPI inflation peaks at 4.5 per cent in the December quarter 2026. Trimmed-mean inflation is forecast at 3.6 per cent in December 2026 and 3.5 per cent in June 2027, before easing to 2.9 per cent by December 2027. The statement says inflation is expected to return to the top of the 2–3 per cent target range in late 2027, about three quarters later than previously forecast.

These forecasts assume a cash rate path based on market pricing as at 28 October 2026. That path implies a further rise of about 35 basis points by mid-2027. It is market pricing, not a commitment by the RBA.

The other side of the ledger

The RBA also lists ways the tightening could end up doing more than expected. The SMP notes that inflation could fall faster if higher rates and falling housing prices weigh on spending. In a downside scenario, where households and businesses respond more strongly to oil prices, interest rates and falling house prices, GDP is about 1.0 per cent lower by end-2028 and unemployment is 0.3 percentage points higher, while inflation is only modestly lower.

On the upside, prolonged energy disruption and strong AI-related Investment are identified as inflation risks. The SMP judges domestic inflation risks to be skewed to the upside and domestic activity risks to be broadly balanced.

Governor Michele Bullock told the Senate Economics Legislation Committee on 28 October that "continued weak productivity growth means that the economy cannot grow strongly without putting pressure on inflation."

The bottom line

The RBA's own documents suggest the hiking has worked on financial conditions, spending and home prices. On the measure that matters most to the Board, broadly based underlying inflation, the results are not yet enough. The RBA says it is uncertain how restrictive policy is. It forecasts that inflation will stay above 3 per cent until end-2027, and it says the Board will be "attentive to the data and the evolving assessment of the outlook and risks to guide its decisions." The next CPI release is on 25 November, and the next decision is on 8 December.

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