Key Highlights

  • Overnight indexed swap pricing implied an 85% probability of a November cash rate increase.
  • The Inflation picture was an important Factor behind the high odds.
  • Deputy Governor Andrew Hauser linked Central Bank credibility to how Monetary Policy works.
  • Market pricing can shift quickly as new data arrive.

Financial markets had largely anticipated the Reserve Bank's November rate rise, and understanding how those odds are read helps explain why a split decision still arrived with little surprise.

By the time the Monetary Policy Board met in early November 2026, financial markets had already formed an encouraging view of what it would do. According to the Financial Conditions chapter of the RBA's November Statement on Monetary Policy, overnight indexed swap (OIS) pricing before the meeting implied that "market participants assign an 85 per cent probability to a cash rate increase in November".

On 3 November, the Board did raise the cash rate target, by 25 basis points to 4.85 per cent.

What OIS pricing measures

An overnight indexed swap is a financial contract linked to the cash rate over a set period. Because traders use these contracts to position for, or protect against, changes in the cash rate, their prices can be used to infer what the market as a whole expects the RBA to do.

When the RBA reports that OIS pricing implied an 85 per cent probability of a rise, it is describing the market's collective expectation, derived from prices. It is not a survey of economists, and it is not the RBA's own forecast.

Several cautions apply to reading such figures:

  • An implied probability reflects pricing at a point in time and can shift quickly as new information arrives.
  • It summarises the views of market participants, who may be wrong.
  • An 85 per cent probability also implies the market saw a meaningful chance — around 15 per cent, by simple subtraction — that the Board would not raise.

The decision against the odds

The outcome matched the majority expectation. The Board's statement read: "At its meeting today, the Board decided to increase the cash rate target by 25 basis points to 4.85 per cent." The new rate took effect on 4 November 2026.

Yet the Board itself was divided. Six members voted to increase the rate, while three voted to leave it unchanged at 4.60 per cent. In other words, a high market probability did not translate into a unanimous committee. Market pricing estimates the likelihood of an outcome; it does not capture the internal deliberations of the people making the decision.

The Board's stated rationale was that "the Board judged that a further tightening in financial conditions is warranted", with "Inflation is now forecast to remain elevated through much of 2027".

Why markets leaned towards a rise

The inflation picture was one obvious factor:

  • Headline CPI was 3.9 per cent over the year to the September quarter.
  • Trimmed mean (underlying) inflation was 3.7 per cent over the same period.
  • The monthly CPI indicator, a separate measure, showed 4.3 per cent annual headline inflation in the September month.

The RBA's own forecasts, finalised on 28 October, showed headline inflation rising further: "Headline inflation is expected to peak at 4.5 per cent in the December 2026 quarter".

Oil was also a factor. The Statement's Outlook chapter notes that "The assumed oil price in the December quarter is 35 per cent higher than assumed in August".

When markets move first

One consequence of a well-anticipated decision is that some of its effects may show up in financial markets before the announcement. The Financial Conditions chapter noted that "Australian government bond yields have also increased since the August Statement", and that yields were "around their highest levels in many years".

This links to a broader point in the RBA's November documents. The forecasts in the Statement are built on a cash rate assumption taken from market pricing as at 28 October. On that basis, the Outlook chapter describes a path that "increases by 35 basis points by mid-2027, before declining a little to stabilise at 4.8 per cent in 2028." The assumed year-average cash rate is 4.7 per cent for 2026 and 4.9 per cent for 2026/27.

That path reflects what markets were pricing, not what the Board has committed to. The Board's own language is open-ended: it "will continue to do what it considers necessary to bring inflation sustainably back to target."

Expectations as a policy tool

Market expectations about the cash rate are distinct from household and Business expectations about inflation, but the two are connected in the RBA's thinking. Governor Michele Bullock said at her media conference: "It is critical that we stop expectations for high inflation from becoming embedded in price-setting decisions".

Deputy Governor Andrew Hauser, in his 5 November lecture at the Australian National University, put the role of credibility in broader terms: "So trust isn't just a source of legitimacy – it's integral to how monetary policy actually works." He cited 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.

When markets correctly anticipate a central bank's actions, it can indicate that the bank's reasoning is being understood. Hauser also cautioned, however, that "A reserve of trust is not a licence to disappoint."

Looking to December

The next scheduled cash rate decision is at 2.30 pm on 8 December 2026. Before then, the minutes of the November meeting are due at 11.30 am AEDT on 17 November, and the October monthly CPI indicator is released on 25 November.

The bottom line

The November rise was, in market terms, priced before it happened: OIS contracts implied an 85 per cent probability of an increase, and the Board delivered one. But the six-to-three vote is a reminder that market odds and committee decisions are different things. Market pricing also feeds directly into the RBA's forecasts through the assumed cash rate path, which is why that path should be read as a reflection of market expectations at a moment in time rather than as a statement of the Board's intentions.