The RBA now expects Unemployment to climb further than it did three months ago, yet it still raised the cash rate on 3 November. The reason lies in how the Board weighs a softening jobs market against Inflation that has proved more stubborn.

At first glance, the November decision looks like a puzzle. The Board's own statement acknowledged that "the unemployment rate is projected to rise by more than expected in the August forecasts". In the same statement, it announced an increase in the cash rate target of 25 basis points to 4.85%, effective 4 November 2026.

So why did a majority of the Monetary Policy Board decide another increase was warranted, and why did three members disagree?

A weaker jobs outlook, on paper

The November 2026 Statement on Monetary Policy (SMP) revised its unemployment forecasts higher across the board. It now projects the unemployment rate at 4.7% in December 2026, compared with 4.5% in the August forecasts, and 4.9% by December 2027, compared with 4.7%. Those are forecasts, conditional on a cash rate path drawn from market pricing as at 28 October.

Some RBA officials have pointed to signs of easing in the labour market. Assistant Governor (Financial Markets) Christopher Kent, speaking at the CBA Global Markets Conference on 19 October, said "there are indicators where the labour market has become less tight a bit faster than we might have forecast."

The Board's statement on 3 November also said that "The economy is slowing, housing prices have fallen significantly and the unemployment rate has risen."

Other assessments complicate that picture. Governor Michele Bullock, in her opening statement to the Senate Economics Legislation Committee on 28 October, said "the labour market seems a little tighter than we had previously judged."

That is not necessarily a contradiction. A labour market can be loosening at the margin, with unemployment rising, while still being tighter than the economy can sustain without generating inflation. The minutes of the September meeting captured that concern: "Members expressed their concern that excess Demand was greater than previously assessed."

The November SMP reached a similar judgement: "The economy is currently operating with excess demand and is judged to reach balance next year". Put simply, the RBA's view is that demand is still running ahead of the economy's capacity to supply, even though conditions are easing.

The inflation side of the ledger

The decisive Factor in November was inflation. The Board's statement said "Inflation remains elevated and recent data indicate that it is broadly based."

The data support that description. Monthly headline CPI inflation rose from 3.5% in July 2026 to 4.0% in August and 4.3% in September, in year-ended terms. The RBA's preferred underlying measure, trimmed mean inflation, was 3.7% over the year to the September quarter and 1.0% in the quarter itself.

The forecasts were also revised up sharply. The SMP now expects headline CPI inflation of 4.5% at December 2026, up from 3.6% in August, and trimmed mean inflation of 3.6%, up from 3.3%. According to the Board's statement, inflation is not expected to reach the top of the 2–3% target range until late 2027, about three quarters later than previously forecast.

Deputy Governor Andrew Hauser summed up the shift at a Citi conference fireside chat on 21 October: "The inflation outlook looks materially worse than we projected in the August report."

Expectations: the risk the Board would not ignore

The deeper concern is not only the level of inflation but what people expect it to be. The Board's statement warned that "there is an increasing risk that higher inflation expectations will become embedded." It noted that some measures of expectations have risen lately.

Hauser has pointed to a rising share of firms that see 3–3.5% inflation as the "new normal", and said: "We can't allow expectations to shift away from the target."

If businesses and workers come to expect inflation well above target, they may set prices and wages accordingly, making high inflation harder to dislodge. From that perspective, a somewhat weaker labour market now may be judged a smaller cost than a longer period of high inflation later. The Board's statement said: "The Board is conscious of the period in which inflation has been too high."

Why three members disagreed

The decision was not unanimous. Six members voted to raise the cash rate to 4.85%; three voted to hold it at 4.60%. That contrasts with the unanimous decision on 29 September, when the cash rate was raised from 4.35% to 4.60%.

The individual votes have not been attributed. What can be said is that the split reflects the genuine tension at the heart of this decision. Arguments for holding could draw on the slowing economy, falling housing prices, rising unemployment and the fact that financial conditions are already, in the SMP's words, "judged to be restrictive." Arguments for raising rest on broad-based inflation, upward forecast revisions and the risk to expectations.

Officials have also been at pains to stress that the goal is not a slump. Assistant Governor (Economic) Sarah Hunter said in an interview on 25 October: "We're not trying to achieve a sharp stop or a really big downturn or anything like that." Hauser was more direct still: "No lost Job is one to celebrate."

The bottom line

The RBA raised rates despite a weaker unemployment outlook because, in the majority's judgement, the inflation risks outweighed the labour market costs. The labour market is softening, but the Board still sees excess demand, broad-based price pressures and a growing risk that higher inflation expectations take hold.

Three members saw the balance differently, which suggests the next move is far from settled. The next decision is due at 2.30 pm on 8 December 2026. Readers weighing what tighter conditions mean for their own position can consider speaking with a licensed adviser or their lender.