RBA Turns Hawkish as Inflation Risks Become Reality

The minutes from the RBA's September 2026 meeting point to a definite move toward stricter policy: the Board unanimously increased the cash rate by 25 basis points to 4.60% and left more hikes on the table. Once seen as possible problems, inflation risks have grown more real as rising oil prices, increasing AI-related costs, strong unit labour costs, and broad corporate cost pressures all contribute to inflation.

Though said to be somewhat limited, the Board wondered whether they were constrained enough, especially given the increase in the worldwide neutral interest rate. Though stricter policy affects demand and employment, it contended that acting early might assist stop inflation expectations from moving up. Though the RBA claimed labor-market indicators are generally steady and inflation management is given top priority, growth is declining—particularly household consumption—and unemployment reached 4.6% in August.

The minutes support a hawkish view for the Australian dollar and bond yields and strengthen the argument for a higher Australian rate trajectory while presenting hazards for rate-sensitive equities. Markets will search future underlying inflation and CPI numbers, oil-price pass-through, employment, and consumer expenditure for signals of another increase. The Board's commitment to do what is needed helps to keep that probability clearly in play.