Higher interest rates increasingly likely in November
Melbourne Institute of Applied Economic and Social Research, University of Melbourne
Key Facts:The Melbourne Institute expects the RBA to increase the cash rate to 4.85% next week.
MI experts believe both higher inflation and elevated inflation expectations means the likelihood of a further rate increase is high.
Friday, 30 October 2026
For immediate release
Higher interest rates increasingly likely, says Melbourne Institute experts
The Melbourne Institute of Applied Economic and Social Research expects the Reserve Bank of Australia (RBA) to increase the cash rate to 4.85 per cent next week, marking the fifth increase for 2026.
“Inflation remains high. Both headline and underlying inflation have increased and are well above the top end of the target band. Inflation expectations have also risen in recent months," said Associate Professor Sam Tsiaplias.
"The combination of higher inflation and elevated inflation expectations means the likelihood of a further rate increase is high."
Unemployment remains relatively low by historical standards. In the short term, higher unemployment may be an inevitable and unfortunate consequence of higher rates. In addition, the cost-of-living effects of higher rates will not be evenly distributed. Mortgage-holders, for example, will disproportionately experience rising cost-of-living pressures, whereas individuals with significant deposits may benefit. The key consideration is lowering inflation and managing inflation expectations without dragging down economic conditions and raising unemployment any more than is warranted.
“A point of uncertainty is that much of the effects of raising interest rates will not be evident for a considerable number of months. Consequently, monetary policy must anticipate the future, which is inherently uncertain."
"Despite this uncertainty, waiting too long risks both higher inflation and entrenched higher inflation expectations. The latter can feed into consumer decision making, wage expectations and other key facets of the economy. Lowering entrenched high inflation expectations is likely to be more difficult and to require more substantial interest rate increases than acting earlier.”
“The prices of goods and services are rising faster than the RBA wants them to rise. There are two key considerations here. One is overseas pressures, such as the conflict in the Middle East pushing up fuel prices. The other is domestic conditions. Although monetary policy has little direct influence on the former, it can influence inflation expectations, with research showing that inflation expectations reflect both overseas and domestic conditions.”
Melbourne Institute economists have not ruled out further interest rate rises, saying decisions will need to be guided by the latest monthly data. With the economic outlook so uncertain, it will be important to stay flexible and to adjust expectations about the future path of interest rates as new information becomes available.
Associate Professor Sam Tsiaplias is available for interview.
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