Reserve Bank hints at another interest rate rise in September meeting minutes

The Reserve Bank has hinted it could raise interest rates to an 18-year high at its next meeting in three weeks’ time, noting domestic price pressures appear to be stronger than the effects of the Middle East conflict.

Its nine-member monetary policy board last month unanimously voted to raise the cash rate to a 15-year high of 4.6 per cent, marking the fourth hike this year and the 16th since Labor came to power four years ago.

But more pain is likely again on Melbourne Cup day with inflation in August remaining above the RBA’s 2-3 per cent target for the 13th straight month.

“The board will remain focused on its mandate to deliver price stability and full employment and will continue to do what it considered necessary to achieve that outcome, including increasing the cash rate target further if required,” the minutes of the September 28-29 meeting released on Tuesday said.

Another rate hike on November 3 would take the RBA cash rate to 4.85 per cent, which would be the highest borrowing cost since December 2008 and mark the fifth increase this year.

ANZ head of Australian economics Adam Boyton said the hawkish tone of the RBA minutes suggested another increase next month by vote of the monetary policy board.

“We continue to expect that a rate hike in November is more likely than not, although the incoming data and global events will play a large part in shaping the MPB’s views between now and November,” he said.

While unemployment is at a five-year high of 4.6 per cent, the Reserve Bank minutes revealed its own economists were “increasingly questioning whether the rate of unemployment that is consistent with the inflation target was higher than previously assessed”.

Mr Boyton said this suggested the RBA “may be more tolerant of a higher unemployment rate”.

Despite the Iran war, Australia has a bigger homegrown inflation problem with non-tradables inflation, reflecting domestic price pressure, rising by 4.5 per cent compared with 2.9 per cent for tradables inflation linked to imports in the year to the end of August.

“While the monthly data can be volatile, the staff’s preliminary assessment – based on sub-components of the consumer price index – was that the upward surprise in underlying inflation was more likely to reflect greater domestic capacity pressures than unexpectedly strong pass-through of cost increases flowing from the Middle East conflict,” the minutes said.

“Members concluded by discussing what these developments implied for their judgement about domestic capacity pressures and their impact on the inflation outlook.”

The RBA’s preferred measure of underlying inflation, known as the trimmed mean, has been above its 2-3 per cent target for 13 straight months, growing by an annual pace of 3.6 per cent in August.

The Middle East conflict is also adding to inflationary pressures, with headline inflation in August rising to 4 per cent, up from July’s 3.5 per cent level, following Iranian militia-backed drone strikes on Saudi Arabia’s East-West pipeline.

“The risk of a re-escalation of the Middle East conflict had since crystallised. Global energy prices were significantly higher than assumed in August, reflecting ongoing disruptions to shipping, damage to refineries and low inventory levels,” the RBA minutes said.

Capital city motorists are now typically paying $2.40 a litre for unleaded petrol.

The Reserve Bank’s four interest rate rises since February has also diminished the borrow capacity of prospective homebuyers, with new data from credit check firm Equifax showing a 22.1 per cent plunge in first homebuyer applications, when September 2026 was compared with a year earlier.

This followed a 20.1 per cent annual plunge in August and a 19.2 per cent year-on-year decline in July.

Equifax chief solution officer Kevin James said recent house price falls were stopping prospective property market newcomers from being able to afford to service an average new, first homebuyer mortgage of $743,000.

“Younger buyers in the 18–35 demographic are facing compounding pressures. Even though we’ve seen some property value dips recently, baseline prices still remain high,” he said.

Canstar calculates that since the start of this year, an average, full-time worker earning $108,352 has seen their borrowing capacity fall by $47,400 or 9 per cent as a result of RBA monetary policy tightening.

The Australian Bureau of Statistics is releasing updated inflation data for September on October 28 ahead of the RBA’s next meeting.