Key Highlights

  • The minutes say markets expected a September rise, about 15 basis points more by year-end and a further 30 basis points in the first half of 2027.
  • Simple arithmetic based on that market pricing suggests roughly 4.75% by end-2026 and 5.05% by mid-2027, against August assumptions of 4.4% and 4.5% (approximate arithmetic, not RBA figures).
  • The two sets of figures come from different dates and are different kinds of numbers, and neither is a commitment by the Board.

Financial markets at the time of the September meeting were pricing a noticeably higher cash rate path than the one assumed in the Reserve Bank's August forecasts, a gap that reflects how fast expectations moved over a matter of weeks.

Two very different groups try to map where Australian interest rates are heading. One is the trading community, whose expectations are embedded in market prices. The other is the Reserve Bank of Australia's (RBA) own staff, whose forecasts are built on an assumed path for the cash rate. In the weeks either side of the September rate decision, those two maps pointed in the same direction but to quite different heights.

The Monetary Policy Board raised the cash rate target by 25 basis points to 4.60% on 29 September 2026, effective the following day. It was the fourth increase of 2026. Comparing what markets expected around that decision with what the RBA assumed in August helps show how quickly the outlook changed.

The market's view at the September meeting

The minutes of the 28–29 September meeting, published on 13 October, describe market expectations at the time. Markets expected an increase at that meeting, then about 15 basis points more by year-end and a further 30 basis points in the first half of 2027.

The expectation of a September rise was widely shared. According to the minutes, all surveyed market economists expected an increase.

As a simple piece of arithmetic, not an RBA figure, adding those increments to the 4.60% cash rate implies a market-priced rate of roughly 4.75% by the end of 2026 and roughly 5.05% by mid-2027. Because the minutes describe the increments as approximate, these implied levels are approximate too.

The forecasters' path, and the distance between them

The RBA's August 2026 Statement on Monetary Policy contained a very different cash rate assumption. Those forecasts were finalised on 5 August, before the September rise. The assumed path was:

  • June 2026: 4.3%
  • December 2026: 4.4%
  • June 2027: 4.5%
  • December 2027: 4.5%
  • June 2028: 4.4%
  • December 2028: 4.4%

That path peaked at 4.5% and eased slightly in 2028. The actual cash rate target of 4.60% already sits above every point on it.

Set side by side, the difference is clear. For the end of 2026, the August assumption was 4.4%, while the market pricing described in the minutes implies roughly 4.75%. For mid-2027, the August assumption was 4.5%, compared with roughly 5.05% implied by market pricing.

Two cautions apply when making this comparison. First, the two sets of figures come from different dates: the RBA's assumption was locked in on 5 August, while the market expectations relate to the time of the late-September meeting. Second, they are different kinds of numbers. One is an input to the RBA's forecasting exercise; the other is an inference from market prices. Neither is a commitment by the Board.

The time gap itself is part of the story. Explaining the September decision, the Board's statement said "some of the upside risks flagged in August are materialising." The minutes record that July monthly CPI was stronger than expected, particularly for market services, and that domestic petrol and diesel prices in August were 13% higher than forecast. Developments "pointed to an increase in the risk of persistently elevated inflation."

How the RBA and markets reacted

The Governor did not endorse the market path. "I'm not going to give you forward guidance," Michele Bullock said at her media conference. She was also frank about the limits of anyone's knowledge: "Will it be enough? I don't know."

She did set out a conditional commitment: "The Board will increase interest rates again if that's what's needed to get inflation down." The minutes say the Board will consider "increasing the cash rate target further if required."

Bullock also commented on bond markets, saying: "I think the bond markets are reacting in an orderly way."

The minutes recorded several other market moves around the decision. Australian equities had fallen about 5% since the previous meeting. The Australian dollar was about 5% higher since the start of the year on a trade-weighted basis, though it had depreciated slightly since the previous meeting.

The exchange rate offers another point of comparison between traders and forecasters. The August forecasts assumed a trade-weighted index (TWI) of 65.3 from December 2026 onwards. At 4.00 pm on 13 October 2026, the RBA recorded the TWI at 64.7, with the Australian dollar buying US$0.6961. Bullock noted that "The exchange rate channel takes a while to feed through."

Why the gap matters for readers

The comparison is a reminder that the RBA's published forecasts and market pricing serve different purposes. Forecasts set out the RBA's judgement about the economy under a given set of assumptions at a given point in time. Market pricing reflects what traders collectively expect, which can shift rapidly with each new data release.

The August inflation forecasts, for example, had the trimmed mean staying at 3.0% in June 2027 and reaching "the midpoint of the 2–3 per cent target range in 2028", based on a cash rate assumption that has already been overtaken. Since then, headline CPI has come in at 4.0% over the year to August 2026 (monthly CPI), while underlying inflation, measured by the trimmed mean, was 3.6% over the year to the June quarter of 2026.

Neither traders nor forecasters can say what the Board will decide. Bullock said the full effect of rate changes takes 12 to 18 months, which means the effects of 2026's increases are still working through.

The bottom line

At the time of the September meeting, market pricing pointed to a cash rate path well above the one the RBA assumed in its August forecasts, which were finalised before the September rise. The gap reflects a burst of upside inflation news over a few short weeks rather than any signal from the Board, which has declined to give forward guidance. The next tests are scheduled: September CPI data on 28 October and the next cash rate decision at 2.30 pm on 3 November 2026.

Both paths reflect market-based expectations at different observation dates. Neither is an independent RBA forecast or an undertaking that the Board will follow that path.