The Reserve Bank of Australia (RBA) increased the cash rate target by 25 basis points to 4.60 per cent on 29 September 2026, with the Monetary Policy Board stating that Inflation remained above the level it considered consistent with its target. The Board assessed that further tightening in financial conditions was appropriate, and the decision was made unanimously.

The decision followed the Board meeting held on 29 September 2026. The RBA stated that the latest increase was the third cash rate rise since the beginning of 2026. The announcement did not specify the previous cash rate level or the effective date of implementation.

Factors behind the RBA decision

The RBA highlighted several developments influencing its assessment of inflation risks. It noted that the conflict in the Middle East had expanded, contributing to global energy prices rising above assumptions used in the August forecasts.

The Board also referred to increases in global prices for technology-related goods, partly associated with Demand linked to artificial intelligence-related investment. Domestic capacity pressures were also identified as a Factor affecting inflation conditions.

Business conditions were another consideration. According to the RBA, discussions with businesses indicated ongoing cost pressures, with some businesses increasing prices or considering future price increases. The Board also noted that short-term inflation expectations remained elevated and recent inflation outcomes were higher than previously anticipated.

Economic conditions remain mixed

The RBA’s assessment pointed to a combination of slowing activity and continued inflation pressures. Economic growth moderated but exceeded expectations in the June quarter, while household consumption growth continued to ease gradually.

Housing market conditions also showed changes, with property prices declining in most Capital cities and new housing loan commitments reducing noticeably.

Labour market conditions have softened broadly in line with expectations, while Business Investment and private sector Debt growth remained elevated. These factors contributed to the Board’s assessment of the balance between inflation risks and economic activity.

Impact on borrowers and savers

The cash rate is the overnight Interest Rate used in transactions between banks and does not directly determine Mortgage or deposit rates. Financial institutions set their own lending and deposit rates, and any changes may vary in timing and size.

For households with variable-rate loans, a lender passing on the increase could result in higher repayment costs. Deposit holders may see changes to savings rates depending on decisions made by individual financial institutions.

Borrowers with fixed-rate loans are generally unaffected until their fixed-rate period ends. The impact of the cash rate decision will depend on individual loan agreements and lender policies.

Uncertainties around future policy decisions

The RBA noted that previous cash rate increases had tightened financial conditions and that economic growth was slowing. However, it also stated that inflation remained above desired levels.

Energy price movements remain uncertain because they depend on international developments. The Board also highlighted the importance of monitoring inflation, employment conditions, consumer spending and business behaviour.

The RBA stated that it would continue assessing economic data and would adjust policy if required to return inflation sustainably to target. This guidance is conditional and does not indicate a predetermined path for future interest rate decisions.

What to watch next

Future inflation data, labour Market Indicators from the Australian Bureau of Statistics and updated RBA forecasts will provide further information on economic conditions.

Market participants and households will also monitor announcements from financial institutions regarding changes to mortgage and deposit rates, as well as future RBA statements for changes in its assessment of inflation risks and economic growth.