The Reserve Bank has just told borrowers that its own forecasts are out of date. That is unusual, and it matters more than any single data point. A senior official said the August projections now badly understate an economy that is shifting quickly, which throws the hoped-for November pause into real doubt.
The cash rate sits at 4.6% after a fourth increase in September, a 15-year high. The bank skipped hikes in June and August, so the path has been uneven. That unevenness is part of the problem.
The RBA rate hike case is about trust, not just numbers
The deputy governor’s most striking comment was not about oil or data centres. It was that some people doubt inflation will return to target, which he described as a central banker’s nightmare. Trimmed mean inflation held at 3.6% in the year to August, the fourth month in a row at that level, up from 3.4% in April.
Here’s the catch. A central bank’s main tool is not only the cash rate. It is the belief that inflation will come back to target. If households and firms stop believing that, they set prices and wage demands higher, and the bank then has to push harder to get the same result. Credibility is doing real economic work.
The catch
- Cash rate: 4.6%, a 15-year peak
- Trimmed mean inflation: 3.6% for the fourth straight month
- Oil: roughly a third above the level assumed in August
- Board meets 2-3 November, decision announced at the end of the meeting
Three upside risks the August forecasts missed
The official named three. Oil prices are around a third higher than the August forecasts assumed. Rising AI-related prices are flowing into consumer inflation. And a run of global demand shocks is landing alongside a domestic surge in data centre building.
None of these is a one-off that fades quickly. Each pushes prices or demand up at a time when households are already stretched by higher repayments, fuel and food. That is why the board cannot simply wait for the next figures to settle the question.
The trade-off the board is describing
The deputy governor framed the choice plainly. Fight inflation and risk jobs, or protect employment and risk entrenched prices. He also said the forecasts are not finished, which means even the bank does not yet know where it lands.
Commentary has split along predictable lines. One camp reads the speech as a clear signal that another hike is the base case. The other reads it as a warning that has been priced in already and that the bank is talking tough to anchor expectations. Both can be partly right. A bank worried about its credibility has an incentive to sound firm even if the final decision is closer than the language suggests.
What shaky guidance means for fixed and variable borrowers
If the bank itself admits its forecasts are stale, treat any forward guidance as a range, not a promise. That changes how you weigh borrowing decisions.
- Variable borrowers: Assume a further increase is possible and check you can cover repayments at a cash rate higher than today’s. A buffer matters more than a prediction.
- Borrowers coming off a fixed term: Do not plan around a pause. Ask your lender what the repayment looks like at today’s rates plus a further rise, then compare.
- Anyone weighing a fix: Fixed rates already price in market expectations. Locking in buys certainty, not a bargain, and you give up the benefit if the bank blinks.
- Refinancers: Switching still pays if your current lender is well above the market. But do not assume rates will fall before your next review.
If your budget only works at a lower cash rate, the problem is the budget, not the forecast. Our guide to RBA rates and repayments shows how to test your repayments against different rate paths.
How this fits the wider market
The big banks have already been moving. Some have shifted their calls toward a November hike, as we covered in Westpac RBA forecast holds as big banks flip to November hike. And higher rates are already biting on demand, with mortgage applications down 26% as rates and tax changes bite.
For investors, the second-order effect is the one to watch. A longer stretch of high rates squeezes cash flow, trims borrowing capacity and can force a rethink of whether extra cash belongs in the mortgage or elsewhere. Our guide to investing versus paying off the mortgage covers that trade-off.
The practical read before 2-3 November
The base case is a live decision, not a done deal. The board meets on 2-3 November and announces its call at the end of the meeting. Between now and then, the useful move is to stress-test rather than guess. Work out your repayments at the current 4.6% cash rate plus another increase, confirm you can carry them, and only then decide whether to fix, refinance or hold. Subscribe to the newsletter for the weekly read on what the next decision means.
General info, not financial advice.
