RBA Hikes 25bp to 4.85% in Split 6-3 Vote, Sees Inflation Above 3% Until Late 2027
| Pair | Now | Since publish |
|---|---|---|
| AUDUSD | — | — |
- RBA hiked 25bp to 4.85%, fifth hike of 2026, split 6-3
- Inflation seen above 3% until late 2027; Bullock gave no forward guidance
- AUD fell as dovish signals emerged; Commerzbank and ING expect no further hikes
- TD Securities sees earliest cut in November 2027; ING keeps AUD/USD year-end target at 0.7100
The Reserve Bank of Australia is widely expected to lift the Official Cash Rate by 25 bps to 4.85% from 4.6% on Tuesday, which would be the fifth hike of 2026 and an 18-year high. The decision is due at 03:30 GMT with the Statement on Monetary Policy, followed by Governor Bullock’s press conference at 04:30 GMT. Commonwealth Bank and JPMorgan have both moved to November hike calls, and 31 of 32 economists polled expect a hike, with Deutsche Bank the only one forecasting a hold. Markets price roughly 87% odds of a move, so the focus has shifted to forward guidance and whether the door stays open to a February hike. Commentary suggests a hawkish hike could support the Australian dollar, while a hold or signs of a peak would likely weigh on it and lift short-dated bonds. The RBNZ’s recent surprise hold is cited as a reminder that near-unanimous pricing can fail. Oil is a key external factor, with Deutsche seeing Brent at $90 by early next year versus Goldman’s $105 December forecast. AUD/USD is struggling to hold the 0.7000 level ahead of the announcement.
The RBA raised the cash rate by 25bp to 4.85% on Tuesday, as widely expected. This is the fifth hike of 2026 (from 4.6%) and takes the rate to its highest level since 2008, an 18-year high. Reports describe it as back-to-back hikes. CNBC says it was the third consecutive meeting with an increase. The RBA cited the need to regain control of inflation, which rose to 4.3% y/y in September, against a backdrop of an oil shock tied to the Middle East war. Over 3.3 million households have home loans. Ahead of the decision, a hike was close to fully priced, and the AUD was trading near 70 US cents. Commentary flagged forward guidance as the key swing factor for the currency. A signal of further tightening (ANZ’s view) would be AUD-supportive and lift front-end yields, while a hike-and-hold message (AMP’s view) would likely cap gains. The US midterm elections and Iran tensions were named as outside risk drivers.
The RBA’s decision was split 6-3, with three board members preferring to hold at 4.60%. The split tempers the hawkish signal. The bank has now raised rates by 125bp in 2026. The board said inflation remains elevated and broad-based, and staff forecasts were revised materially higher. Inflation is now expected to stay above 3% over the coming year and not return to the top of the 2-3% target band until late 2027, about three quarters later than previously projected. The statement said the revised outlook and continuing upside risks mean “a further tightening in financial conditions is warranted” to return inflation to target. The statement contained no explicit tightening bias. Governor Michele Bullock offered no forward guidance at her press conference and said it is probably good to wait for data. She warned that inflation is largely locked in for the next year and that unemployment must rise further. She also described the dissent, which suggested a significant minority is wary of overtightening. Market reaction: markets had priced about an 85% chance of the hike, and roughly 1.5 further increases by mid-2027. The AUD dipped after the decision, and AUD/NZD fell for a second straight day to around 1.2430 in Asian trade. Analysts noted that the dissent and lack of a tightening bias limit scope for a sustained AUD rebound, while the higher inflation forecasts keep the front end of the curve supported and a further hike possible but not assured.
Governor Michele Bullock said the 25bp hike to 4.85% might not be the last, but that judging the next step is “not as obvious” as before. She said she does not know how high rates will need to go, and her tone at the press conference was described as neutral and even. The central bank is trying not to pre-commit to further tightening. TD Securities’ Prashant Newnaha reads the hike as a conditional pause rather than the start of another tightening cycle. He points to the 6-3 vote and a softer growth outlook as signs of an extended hold, despite the higher inflation forecasts. TD sees the earliest rate cut in November 2027, with earlier easing possible if unemployment and housing weaken sharply. TD expects the Australian Dollar to underperform into year-end.
Commerzbank’s Norman Liebke said the Australian Dollar fell after the RBA’s 25bp hike to 4.85% because markets read the move as dovish. The hike had been widely expected by the market and by the Bloomberg consensus, so the decision itself offered little support. Liebke pointed to softer growth and labour market forecasts, and noted that inflation is driven partly by external oil shocks. Commerzbank expects no further RBA hikes. It sees the Aussie’s path as tied more to US and euro-area interest rate expectations than to RBA policy. RTTNews separately confirmed the 6-3 vote, the fifth hike this year and 125bp of cumulative tightening in 2026. It said the RBA aims to bring inflation sustainably back to target.
ING’s Francesco Pesole said the Australian Dollar came under pressure after the RBA’s 25bp hike to 4.85% because the decision carried dovish signals. He cited the 6-3 split vote, softer guidance and a weaker economic outlook. ING expects no further RBA hikes, matching Commerzbank’s view. ING still sees AUD positively because of strong carry and limited scope for further dovish repricing. ING keeps its AUD/USD year-end target at 0.7100, despite near-term challenges. This contrasts with TD Securities, which expects the Aussie to underperform into year-end. BabyPips also reported the decision, noting the 6-3 split and higher inflation forecasts complicate the policy outlook.