Reserve Bank of Australia Expected to Raise Rates to 4.6%

The Reserve Bank of Australia is widely expected to raise the official cash rate from 4.35 percent to 4.6 percent during its meeting on September 28 and 29, 2026. Market surveys indicate a 90 percent probability of a 25-basis-point increase, with nearly half of surveyed economists predicting a further hike to 4.85 percent before year-end, a level not seen since the 2008 global financial crisis.

Governor Michele Bullock has signaled that upside risks to inflation are materializing, keeping core inflation at 3.6 percent, which exceeds the target range of 2 to 3 percent. Bullock cited supply-side shocks, including the US-Israeli war on Iran and a global AI-driven data center investment boom, as primary drivers. This priority on inflation comes despite the Australian Bureau of Statistics reporting that the jobless rate unexpectedly rose to a five-year high of 4.6 percent in August.

Economists are divided on the impact of further tightening. Some argue that rate increases are the only alternative despite the risk of recession, while others describe the move as a pointless exercise that punishes mortgage holders without addressing global inflationary forces. Research from the University of Sydney School of Economics suggests a standard 0.25 percentage point hike leads to an immediate 5 percent decline in home purchases, potentially locking tens of thousands of households out of home ownership. In anticipation of the board's decision, 18 lenders, including the big four banks, have already increased home loan rates in September.