Interest rate rise possible as Reserve Bank signals concern over inflation pick-up

The Reserve Bank has delivered a grim update to cash-strapped mortgage holders as the board remains divided over whether interest rates need to rise again.

In its latest minutes of the monetary policy board meeting the Reserve Bank of Australia (RBA) warned of “conflicting signals” and concerns about the recent pick-up in inflation.

“Members discussed the circumstances in which, should these trends persist, an increase in the cash rate might need to be considered at some point in the coming year,” the board said.

In recent months inflation has reversed course with the headline figure moving away from the central bank’s targeted 2 -3 per cent growth rate.

The Australian Bureau of Statistics data shows the inflation rate for October remains unchanged at zero per cent for the month.

However, due to the -0.2 per cent figure in October last year, Australia’s yearly inflation rate has now jumped to 3.8 per cent.

If this uplift in inflation continues, it will weigh on Australians with “households purchasing power comes under further pressure.”

The RBA board noted some of these conditions could be temporary in line with federal and state energy rebates ending, members were split as to whether rates needed to rise or not to stop excessive demand.

“Some members judged that, on balance, financial conditions were perhaps no longer restrictive … other members assessed that, on balance, financial conditions were a little restrictive,” the RBA board said.

Although in welcome news for homeowners the board says it is currently too soon to know if rates need to rise to combat a lift in inflation.

“Members judged that it was too early to determine whether inflation would be more persistent than they had assumed in November ….

“As a result, they agreed it was appropriate to leave the cash rate target unchanged at this meeting and assess at future meetings how their judgments about the key considerations had evolved,” the RBA board said.

The RBA has held interest rates for the last three meetings at 3.60 per cent.

But the minutes also show the previous interest rate decision of cutting in February, May and August by a combined 75 basis points is starting an outsizes impact on growth.

In November private demand jumped by 1.2 per cent, more than doubling expectations of a 0.5 per cent lift in combined business and consumer spending.

“The easing in monetary policy since the beginning of the year had certainly begun to support conditions in the private sector, the bulk of the effect on activity was expected to be seen in 2026, helping to offset the decline in other drivers of growth,” the board said.