Key Highlights

  • The RBA increased the cash rate target by 25 basis points to 4.60% on 29 September 2026.
  • September minutes identified energy costs, AI-related demand and domestic capacity pressures as inflation risks.
  • All participating Board members supported the increase while recognising weaker household demand.

The Reserve Bank of Australia raised the cash rate target because it judged that the inflation risks it flagged in August were no longer hypothetical. The minutes of the Monetary Policy Board's 28–29 September 2026 meeting, published on 13 October, show all nine participating members voted to lift the rate by 25 basis points, from 4.35 per cent to 4.60 per cent.

The Inflation Risks Behind the Decision

The minutes say the Board had identified three upside risks in August: a prolonged Middle East conflict, strong artificial intelligence-related demand and cost pressure, and tighter domestic capacity than staff had assumed. By late September, the Board judged all three had begun to crystallise.

Energy was the clearest case. Domestic petrol and diesel prices were about 13 per cent higher than forecast in August. July inflation was also stronger than expected, particularly in market services, which staff attributed more to domestic capacity pressure than to the Middle East conflict. Unit labour cost growth was above levels consistent with the inflation target, which the minutes link to weak productivity rather than strong wages. Firms' short- to medium-term inflation expectations had drifted higher.

Why the Board Acted in September

The minutes record three arguments for raising rates. Several August risks had materialised or were building. Acting in a timely way would better balance the inflation and employment objectives, given inflation had been above target for an extended period. And the existing rate might not be restrictive enough to restore balance in a reasonable time, especially if the neutral rate had risen.

Arguments for holding were also set out. They included falling housing prices, the Middle East conflict weighing on demand, and the possibility that earlier tightening had yet to bite fully. Members acknowledged that the trade-off between inflation and employment had worsened.

Household Demand and Labour Conditions

Unemployment rose to 4.6 per cent in August, although members urged caution because of changes to survey methods. June quarter growth was a little stronger than expected, driven by business investment, which rose by more than 10 per cent over the year. Household consumption slowed to a below-trend pace in the first half of 2026. Housing prices fell faster than expected, and scheduled mortgage payments reached about 10 per cent of household disposable income, close to the 2024 peak.

Borrowing Costs and Household Resilience

The cash rate and the rates lenders charge customers are different things. A change in the target influences funding costs, but each lender decides its own mortgage and deposit rates, and changes need not be identical across products.

The minutes also describe differences in household resilience. The minutes say balance sheets remained sound, arrears were low, and fewer than 2 per cent of owner-occupier borrowers faced a cash flow shortfall. Savings buffers were substantial, though low-income renters were more exposed to inflation.

What to Watch Next

The next Monetary Policy Board meeting is scheduled for 2–3 November 2026. The RBA’s updated forecasts and September-quarter inflation data are among the information available for assessing how demand, supply capacity and price pressures are evolving.

Looking Ahead

The September decision reflected inflation risks alongside slower household spending and falling housing prices. The minutes record the Board’s judgement at that meeting, with subsequent decisions depending on the evolving outlook.