At 2:30pm, the Reserve Bank is almost certain to raise the cash rate to 4.6%, the highest it has been since November 2011 when the RBA cut the cash rate from 4.7% to 4.5%. It will be the act of a central bank hostage to old thinking and an inability to react to supply shocks.
By Greg Jericho
Tue 29 Sep 2026 11.21 AEST
Photo; AAP Image/Dean Lewins
If the government wants to pursue significant spending cuts, this piece proposes six options that help achieve short term equity and long run efficiency goals. Together, they could save between $14 billion and $62 billion.
There is a difference between what Australia should do and what our most influential businesses would prefer we don’t do. Our energy debate too often blurs the two by insisting on being ‘realistic’.
At 2:30pm, the Reserve Bank is almost certain to raise the cash rate to 4.6%, the highest it has been since November 2011, when the RBA cut the cash rate from 4.7% to 4.5%. It will be the act of a central bank hostage to old thinking and an inability to react to supply shocks.
If you are wondering why it is almost certain that the RBA will raise rates today, a large reason is that everyone thinks it is almost certain.
As of yesterday, the market was pricing in the odds of a rate rise at around 92%, and the RBA, as a rule, never goes against such odds – doing so upsets the markets, and gosh, we can’t have that:
For now, the market also anticipates another rate rise by early next year and a good chance of another one by this time next year. Although just 6 months ago, the market wasn’t even sure that there would be any more rate rises at all:
So, what has changed?
What data has been released suggesting we need to go from no more rate rises to maybe 3 more to “tame” inflation?
The most recent monthly figures were released on 26 August. They showed that the Consumer Price Index (CPI) in the year to July rose 3.5%, down from 3.8% in June. And yes, underlying inflation was steady at 3.6%, and both measures are above the RBA’s target range of 2% to 3%. But this was not the reason why rates are going to rise. When this data was released, the market only anticipated a 46% chance of a rate rise – less than a coin flip.
So, what was it that made it so certain?
The most recent wage price index figures were released a week after the RBA’s last meeting. It showed that private sector wage growth slowed from 3.4% last December to 3.2% in March to 3.1% in June.
So no, wages are not speeding up, nor do they need to be slowed. They already are.
A day after the wage figures came out, the July unemployment figures showed unemployment rose to 4.5%, and then a month later the August figures showed it rising again to 4.6%. That is now half a percentage point higher than it was in January – equivalent to around 87,000 more people unemployed.
So, no, unemployment is not falling and not showing evidence of a tight labour market.
A few weeks after the last meeting, the June quarter GDP figures showed the economy grew just 0.4% in the quarter and 2.1% in the past year. In the first half of this year, the economy grew just 0.7% – less than half the long-term average and at an annualized rate of just 1.4%.
That is quite pathetic.
So no, the economy is not overheating.
So, what is it?
Quality research, analysis, explainers and factchecks from experts you can trust.
His decision to bomb Iran and his total inability to work out a deal to end the war has sent oil prices rising. Since the last RBA meeting, oil prices have risen 20%:
And as oil prices go, so too do petrol prices. Since the RBA last met, unleaded petrol prices in the capital cities on the4 mainland have risen an average of 34c/l:
Petrol prices, of course, are not only part of the CPI basket of goods, but they also flow into the prices of other goods.
So that’s a big reason.
Will a rate rise do anything about that?
Nope.
The rising oil prices, which are increasing inflation around the world, mean institutions want higher interest rates for the finance they provide – after all, why would you lend money at 3.5% annual interest if you think inflation is going to be 3.6%?
Combined with this is the surge in the building of data centres around the world (and in Australia). These cost a large amount of money and so these companies need to borrow money, which means banks and other lending institutions are able to demand higher interest rates for their money.
This has pushed up borrowing around the world.
For example, since the end of March, the rate the US government borrows money at has risen 94 basis points from 4.3% to 5.24%. Over the same time, the rate for Australian government borrowing has gone up 45 basis points:
And that pretty much is it.
The opposition is suggesting government spending is driving up rates. That doesn’t stand up to any real scrutiny given the 10-year bond yield (or interest rates) for Australian government bonds has risen by less than other major nations since the end of March:
If government spending is so out of control, it is odd that world investors seem not so worried…
Also, the latest GDP figures showed that the federal government contributed just 0.24 percentage points to GDP growth over the past year – below the average not just of the past 25 years, but even that of the mining boom period of the 2000s.
And so here we are.
Wage growth slowing, unemployment rising and yet apparently we need higher rates to ensure… inflation comes down even though it is being driven by things outside our (and the RBA’s) control.
