Fifth Hike to 4.85%: A Divided RBA Buys More Insurance (Australia)

The Reserve Bank of Australia (RBA) raised the cash rate by 25bp to 4.85% on 3 November 2026, its fifth hike this year and the highest level since 2008. But the vote was split 6-3, after a unanimous decision in September.

Pointers

• Fifth hike, but a divided Board. The RBA raised the cash rate by 25bp to 4.85% (up 125bp in 2026). The vote was 6-3 after a unanimous September decision, and the explicit tightening bias appears to be gone.
• Core inflation is the focus. Headline CPI rose to 4.3% yoy, mostly on fuel, but the trimmed mean is still stuck at 3.6%. The Board says it is responding to domestic capacity pressures, not oil.
• The economy is cooling. Unemployment has risen to 4.7% from 4.4% in June, private wage growth is at its softest since mid-2022, and house prices have fallen.
• Our read is that the RBA has done enough for now, unless the data surprise. We expect a hold in December. Our hawkish case is one more 25bp hike to 5.10%, if the December-quarter trimmed mean comes in above the RBA’s 3.6% forecast.
• A higher starting yield gives some cushion. The 10-year yield of 5.04% could rise about 70bp over 12 months before a holder’s return turns negative. We keep the barbell of ~1-year and 7- to 10-year bonds, while advocate investors to add duration in stages.

What happened

The Board voted 6-3 to lift the cash rate from 4.60% to 4.85%, a majority vote. In the press conference, Governor Michele Bullock gave both sides of the debate:

•         The hike camp: "Inflation is too high, and our forecasts suggest it will stay higher for longer." The Board is responding to domestic capacity pressures, not the direct effect of oil.

•         The hold camp: The three dissenters weighed the housing downturn, rising unemployment and no wage breakout, and preferred to wait for data.

In the press conference, the governor also mentioned that after five hikes, the more recent ones have not yet fully flowed through the economy. Bullock called this "probably a good point to just take stock".

Why the RBA hiked

The statement said inflation is broadly based and the outlook has worsened since August:

•         Forecasts pushed out. Inflation stays above 3% over the coming year and reaches the top of the 2-3% band only in late 2027, three quarters later than forecast in August.

•         Energy. Fuel prices remain high, and are now being passed through to other goods and services.

•         Domestic capacity. Capacity is a little tighter than estimated, and firms report raising prices.

•         AI prices and expectations. AI investment is lifting technology goods prices, and the Board flagged "an increasing risk that higher inflation expectations will become embedded".

Given how long inflation has been too high, the Board said "a further tightening in financial conditions is warranted".

What changed in the wording (29 September vs 3 November): The Board sounds more worried about inflation, which is now broadly based with expectations at risk and fuel costs passing through, but less committed to hiking further.

On the other hand, the explicit tightening bias is gone.

Table 1: Changes in statement wordings

Theme	29 Sep 2026 (hike to 4.60%)	3 Nov 2026 (hike to 4.85%)	What it signals
Forward guidance	Will do what is necessary, "including increasing the cash rate target further if needed"	Will do what is necessary; "attentive to the data"; policy "well placed to respond to developments"	Explicit hiking bias dropped
Reason for hiking	"Inflation is still too high"; tightening warranted to return inflation to target "in a reasonable period"	"The Board is conscious of the period in which inflation has been too high"; tightening warranted given the "revised inflation outlook and the continuing upside risks"	Credibility now the main motive
Inflation assessment	"Inflation remains elevated and some of the upside risks flagged in August are materialising."	"Inflation remains elevated and recent data indicate that it is broadly based." Outlook "revised materially higher".	From isolated risks to broad-based inflation
Inflation expectations	"The Board remains focused on ensuring that high inflation does not become embedded."	"There is an increasing risk that higher inflation expectations will become embedded"	Expectations risk upgraded
Fuel pass-through	"Higher fuel prices have partially been passed through to prices of other goods and services."	"There are indications that higher fuel prices are being passed through to prices of other goods and services."	Second-round effects ongoing
Growth	"Growth and inflation in Australia have been higher than expected."	"The economy is slowing"; growth to slow further over the coming year	Growth view turned weaker
Source: RBA, 29 September 2026 and 3 November 2026 statements, iFAST compilations.

Inflation: fuel is back, core still sticky

Headline CPI rose to 4.3% yoy in September, from 4.0% in August. Transport, mostly fuel, was the biggest driver, where its contribution rose about 0.35% as fuel prices climbed again.

Table 2: September 2026 CPI breakdown by group, contribution to the 4.3% yoy

Group	Weight (%)	Contribution (pts)	Change vs Aug (pts)	Share of total
Housing	21.39	1.117	-0.095	25.7%
Transport	11.49	1.003	+0.353	23.1%
Recreation and culture	13.09	0.584	+0.212	13.4%
Food and non-alcoholic beverages	17.40	0.559	+0.036	12.9%
Alcohol and tobacco	6.51	0.280	-0.033	6.4%
Health	6.71	0.248	-0.018	5.7%
Education	4.65	0.219	0.000	5.0%
Insurance and financial services	5.57	0.216	+0.019	5.0%
Furnishings and household equipment	7.90	0.059	-0.021	1.4%
Communication	2.12	0.049	+0.014	1.1%
Clothing and footwear	3.17	0.014	-0.069	0.3%
Total	100.00	4.348	+0.398	100%
Source: ABS, iFAST compilations. Data as of 28 October 2026.

On top of that,

•         Housing eased, but is still the largest contributor (1.1pp), on slower new dwelling costs and utilities.

•         Recreation contribution rose to 0.58%, led by holiday travel, which may partly be timing. Domestic holiday travel rose 8.0% in the month on school holidays and major sports events, and the ABS measure excluding volatile items and holiday travel was flat on the month, against +0.5% with holiday travel left in. October data will show whether it reverses.

•         Clothing, furnishings, alcohol and health fell, consistent with softer discretionary spending.

Trimmed mean, RBA’s preferred core measure, which strips out most of the fuel swing was still at 3.6% yoy in September, so inflation is not coming down even excluding fuel.

Those still running at 4-5% yoy include property rates (+5.6%), insurance (+5.4%), medical and hospital services (+4.8%), new dwellings (+4.7%) and child care (+4.4%), with meals out (+3.9%) and rents (+3.6%) not far behind. A few are easing, such as new dwellings (from 5.4% in August), which supports the hold camp, but none is close to the 2-3% target.

The other side: why three members wanted to hold

The RBA expects growth to slow and unemployment to rise by more than it forecast in August. In recent numbers, we see

•         Jobs. Employment fell by 39,300 in September (expected: +20,000). Unemployment is 4.7% in September, up from 4.4% in June.

•         Wages. private sector wage growth slowed to 3.1% in the June quarter, the softest since mid-2022.

•         Housing. The RBA said prices have "fallen significantly", weighing on dwelling investment and consumption.

Market reaction

After Tuesday’s rate hike, overnight index swap now price only an 8% chance of a December hike and a peak of about 4.92% in February 2027, then lower from mid-2027. A month ago, they priced a peak of about 4.96% by June 2027.

Table 3: Overnight Index Swap implied cash rate

RBA meeting	Implied cash rate
8 Dec 2026	4.86%
9 Feb 2027	4.92%
23 Mar 2027	4.91%
22 Jun 2027	4.86%
10 Aug 2027	4.81%
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 3 November 2026.

Bonds rallied on the day. Yields fell 3-6bp across the curve after the meeting and even further the day after. This extends a strong month for the long end, 10-year yields are 31bps lower than a month ago and 30-year yields 34bps lower, while the 1-year remains rather unchanged.

The curve is now lowest in the 3- to 4-year segment (about 4.72%), with both the 1-year and the long end yielding more.

Table 4: Movement in AUD sovereign curve

Tenor	4 Nov 2026 (1 day after the decision)	RBA meeting day	1 month ago	6 months ago	Change vs 1 day (bp)	Change vs 1 month (bp)	Change vs 6 months (bp)
1Y	4.93	5.00	4.93	4.68	-7	0	+25
2Y	4.79	4.89	4.93	4.69	-10	-14	+10
3Y	4.72	4.83	4.91	4.67	-11	-19	+5
4Y	4.72	4.84	4.93	4.66	-12	-21	+6
5Y	4.75	4.86	4.99	4.70	-11	-24	+5
6Y	4.82	4.93	5.08	4.77	-11	-25	+5
7Y	4.88	4.99	5.15	4.82	-11	-27	+6
8Y	4.95	5.05	5.25	4.90	-10	-29	+6
9Y	5.00	5.10	5.31	4.96	-10	-31	+5
10Y	5.04	5.13	5.35	4.98	-9	-31	+6
20Y	5.41	5.48	5.73	5.34	-7	-32	+7
30Y	5.48	5.55	5.82	5.38	-7	-34	+11
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 4 November 2026.

Our view

In our 1 October note, we flagged a peak range of 4.60-4.85%, and the RBA has now reached the top of it. Our lean was a hold at 4.60%, but the September-quarter trimmed mean (1.0% qoq against the RBA’s 0.8% forecast) tipped the Board the other way.

Our read is that the RBA has done enough for now, unless the data surprise. Governor Bullock’s measured tone and emerging cracks in the economy support this. She noted that the recent hikes have yet to flow through, which points to a hold in December. February is the live meeting, depending on the data by then. For now, the focus is on letting the data build.

The focus is on core inflation. Headline inflation will keep swinging with oil prices because of base effects, so it is a noisier guide to the Board’s thinking. The trimmed mean is the measure to watch.

The Board hiked despite rising unemployment and falling house prices, so weak data alone will not stop it. What has changed is the dropped tightening bias and the need to see the lagged effect of 125bp of hikes.

The bar for another hike is also higher as unemployment is rising and house prices are falling, on top of few months time for the higher rates to now flow across the economy. Our hawkish case is one more 25bp hike to 5.10%, if core inflation really stays sticky and fuel prices stay higher for longer. From here, every meeting is data dependent.

What could push the RBA to hike again (to 5.10%):

•         Sticky core inflation. A December-quarter trimmed mean above the RBA’s 3.6% yoy forecast would put February in play. Three monthly CPI prints land before that meeting: October (25 November), November (6 January) and December (27 January), the last with the quarterly trimmed mean.

•         Rising inflation expectations or oil prices. Expectations could drift higher, or oil could jump on Middle East escalation.

What argues for a pause:

•         A divided Board. Only two of the six hawks need to change their minds.

•         Softening labour and housing markets.

Investors are staring with a higher yield

Another point we wish to brought out here is that investors now start from a higher yield, which means more cushion. The 10-year yield of 5.04% is roughly 30bp above where it began the year, and income is what absorbs losses if yields keep rising. A simple rule of thumb is yield divided by duration: 5.04% ÷ 7.9 gives about 65bp, and a full repricing over 12 months puts it at about 70bps. In other words, the 10-year yield would need to rise by roughly 70bps, to around 5.8%, before a one-year holder return turns negative.

If the 10-year yield fell 50bp over the next year, we estimate a total return of about 8.8%, but that needs a clear shift in the growth or rate outlook. If it rose 50bp, the return would still be about 1.5%, because carry outweighs the price loss.

This supports adding duration, but we would still build positions in stages, since the global term premium and any further RBA hikes could push yields higher before they settle.

Positioning: stick with the barbell, add duration gradually

Chart 1: Australia sovereign curve

We keep our barbell of around 1-year and 7- to 10-year tenors, with a slightly greater willingness to extend duration as the cash rate nears its peak.

Short end (around 1 year). The 1-year yield of 4.93% is above the 4.85% cash rate, offering decent carry with minimal duration risk, even if the RBA hikes again in February.

Long end (7 to 10 years). Longer-dated bonds stand to benefit should economic growth weaken further. Investors who hold over a medium-term horizon stand to benefit from additional price appreciation as bonds “roll-down” to shorter maturities along the curve.

However, we would build long-end positions gradually rather than in one go. Even if the RBA is at or near its peak, Australian long-end yields remain exposed to the global term premium repricing, which domestic data alone cannot offset.

Avoid the belly (3 to 5 years). At about 4.72-4.75%, it offers the lowest yields on the curve.

We continue to prefer high-quality investment-grade issuers in defensive sectors such as major banks, supermarket operators and regulated utilities, which are better suited to withstand the higher interest rates and a potentially softer macroenvironment going forward. 

Table 5: Recommended bonds

Within the short ends

Bond	Issuer	Bond credit rating (S&P/Fitch)	Years to next call/maturity	Bond price	Yield to worst	Min/Sub investment amount
ACGB 2.750% 21Nov2027 Govt (AUD)	Australia Government	- / AAA	-/1Y0M	97.8	4.94%	1k/1k
ACGB 2.250% 21May2028 Govt (AUD)	Australia Government	- / AAA	-/1Y6M	96.2	4.82%	1k/1k
Source: Bondsupermart, iFAST compilations. Data as of 4 November 2026.

Within the long ends

	Bond credit rating (S&P/Fitch)	Years to next call/maturity	Bond price	Yield to worst	Min/Sub investment amount
Issuer
Banks
NAB 6.558% 12May2041 Corp (AUD)	National Australia Bank (NAB)	- / A-	9Y6M/14Y6M	99.35	6.63%	1k/1k
WSTP 5.815% 04Jun2040 Corp (AUD)	Westpac Banking Corporation (WBC)	- / A-	8Y7M/13Y7M	94.95	6.57%	10k/10k
ANZ 6.124% 25Jul2039 Corp (AUD)	Australia and New Zealand Banking Group (ANZ)	- / A-	7Y8M/12Y8M	98	6.44%	1k/1k
CBAAU 6.152% 27Nov2039 Corp (AUD)	Commonwealth Bank of Australia (CBA)	- / A	8Y0M/13Y0M	97.89	6.48%	200k/10k
EBIUH 5.913% 18Jun2035 Corp (AUD)	Emirates NBD Bank PJSC	- / A+	-/8Y7M	97.67	6.26%	10k/10k
BPCEGP 6.5618% 12Jun2040 Corp (AUD)	BPCE SA	- / BBB+	8Y7M/13Y7M	95.4	7.23%	1k/1k
Supermarket chains
CGJAU 5.546% 07Oct2032 Corp (AUD)	Coles Group Treasury Pty Ltd	- / -	5Y8M/5Y11M	97.53	6.04%	10k/10k
WOWAU 5.910% 29Nov2034 Corp (AUD)	Woolworths Group Limited	- / -	7Y9M/8Y0M	98.05	6.22%	1k/1k
Regulated business
ANVAU 6.134% 31May2033 Corp (AUD)	AusNet Services Holdings Pty Ltd	- / -	6Y4M/6Y6M	99.95	6.14%	10k/10k
AUSGF 5.946% 10Dec2035 Corp (AUD)	Ausgrid Finance Pty Ltd	- / -	8Y10M/9Y1M	96.9	6.39%	10k/10k
ENBW 5.7923% 26Feb2036 Corp (AUD)	EnBW International Finance B.V.	- / -	-/9Y3M	95.29	6.47%	200k/10k
NBNAUS 5.350% 06Mar2035 Qsov (AUD)	NBN Co Limited	- / AA+	8Y1M/8Y4M	96.09	5.94%	10k/10k
Source: Bondsupermart, iFAST compilations. Data as of 4 November 2026. *Available for trading on RMO.

Some additional AUD selections available for self-directed trading on RMO

Bond	Issuer	Bond credit rating (S&P/Fitch)	Years to next call/maturity	Bond price	Yield to worst	Min/Sub investment amount
NOMURA 6.170% 16Apr2031 Corp (AUD)	Nomura Holdings	- / A-	-/4Y5M	99.9	6.20%	1k/1k
ANVAU 6.4956% 04Feb2056 Corp (AUD)	AusNet Services Holdings	- / -	9Y0M/29Y3M	95.6	6.93%	1k/1k
BACR 8.000% Perpetual Corp (AUD)	Barclays PLC	- / BBB-	5Y7M/-	99.95	8.00%	1k/1k
TCV 5.250% 15Sep2038 Govt (AUD)	Treasury Corporation of Victoria	- / AA+	-/11Y10M	93.6	6.01%	1k/1k
NEE 7.484% 01Sep2056 Corp (AUD)	NextEra Energy Capital Holdings	- / A-	9Y7M/29Y10M	99.85	7.47%	1k/1k
TOYOTA 5.500% 12Jun2031 Corp (AUD)	Toyota Finance Australia Ltd	- / -	- / 4Y7M	99.45	5.63%	1k/1k
Source: Bondsupermart, iFAST compilations. Data as of 4 November 2026.

Conclusion

Today's hike is best read as an insurance move by a divided board, not the start of a new leg of tightening.  Jobs, housing and spending are weakening, and three members were ready to stop. We believe the cash rate is at or near its peak, which supports keeping the barbell and building duration gradually.

Other related articles

•         Fourth Hike to 4.60%: Australia's Inflation Won't Budge, So the RBA Did

•        4.35% and Holding: RBA May Be Near the Finish Line (Australia)

•         Australia 2H26 Bond Outlook: Waiting for the Wind to Shift

---

Declaration

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in NAB 6.558% 12May2041 Corp (AUD), ANZ 6.124% 25Jul2039 Corp (AUD), GOOGL 6.900% 27Aug2046 Corp (AUD), ANZ 6.749% 21Aug2046 Corp (AUD), GOOGL 6.250% 27Aug2036 Corp (AUD), BPCEGP 6.5618% 12Jun2040 Corp (AUD), ACGB 4.750% 21Jun2054 Govt (AUD), GOOGL 5.200% 27Aug2029 Corp (AUD), ACGB 5.000% 21Jun2036 Govt (AUD), ANZ 5.888% 16Jan2034 Corp (AUD), WOWAU 5.910% 29Nov2034 Corp (AUD), WSTP 5.815% 04Jun2040 Corp (AUD), CBAAU 6.400% 05Mar2046 Corp (AUD), HSBC 5.722% 11Mar2035 Corp (AUD), ACGB 4.500% 21Apr2033 Govt (AUD), TOYOTA 5.500% 12Jun2031 Corp (AUD), TCV 5.250% 15Sep2038 Govt (AUD), BACR 6.158% 28May2035 Corp (AUD), BNP 5.830% 23Aug2034 Corp (AUD), ANVAU 6.4956% 04Feb2056 Corp (AUD), ACGB 2.750% 21Nov2028 Govt (AUD), NSWTC 5.500% 22Oct2036 Govt (AUD), GOOGL 5.500% 27Aug2031 Corp (AUD), ANVAU 6.134% 31May2033 Corp (AUD), NSWTC 5.250% 22Feb2039 Govt (AUD), MIZUHO 6.025% 28Aug2029 Corp (AUD), NOMURA 6.170% 16Apr2031 Corp (AUD), HSBC 6.211% 21Mar2034 Corp (AUD), MQGAU 5.953% 01Mar2034 Corp (AUD), LLOYDS 7.086% 31Aug2033 Corp (AUD), BACR 8.000% Perpetual Corp (AUD), NEE 7.484% 01Sep2056  Corp (AUD), TOYOTA 5.500% 12Jun2031 Corp (AUD) and HSBC 5.996% 26May2032 Corp (AUD), and the analyst who produced this report holds a NIL position in the abovementioned securities.