Mortgage holders face grim prospects as deputy governor Hauser hands RBA hawks the keys to a November rate hike
The Reserve Bank of Australia (RBA) expects its inflation outlook to be significantly worse than the forecasts it published in August, Deputy governor Andrew Hauser said in Sydney on Wednesday.
His comments keep a fifth cash rate rise this year firmly in play ahead of the Monetary Policy Board’s 2-3 November meeting.
Speaking at a fireside chat at Citi’s Australia & New Zealand Investment Conference on Wednesday, Hauser said RBA staff were still finalising the forecasts that will accompany next month’s decision, but that the direction of travel was already clear.
“The inflation outlook looks materially worse than we projected in the August report,” he said.
The comments come three weeks after the board lifted the cash rate by 25 basis points to 4.6% – a unanimous decision that marked its fourth increase of 2026 and took the cash rate a full percentage point above where it started the year.
Three inflation risks
Hauser said the three upside risks the board identified in August – a drawn-out Middle East conflict, the global AI and technology boom, and tighter domestic supply – had all crystallised by September and have since deteriorated further.
Oil prices are now roughly a third higher than the RBA assumed in its August projections, with fewer government fiscal interventions in Australia to soften the blow. Rising prices for AI-related technology are also flowing into the Consumer Price Index (CPI), while a boom in data centre construction is adding to domestic demand.
On capacity, Hauser noted inflation had been landing at or slightly above expectations even as the labour market appeared to ease. The CPI components rising fastest, including market services, are those most closely linked to capacity pressures, and the RBA’s business liaison program reports that costs are the leading concern for firms. He confirmed staff are reviewing whether the bank’s judgment on labour market capacity needs to change again.
Hauser added that pass-through from the second round of oil price rises had barely begun to show up, and that the likely size of that impact over the next couple of years is a central question in the current forecast round.
Overlaying all of this is how long inflation has stayed above target. A business survey the RBA runs with Macquarie University shows a growing share of firms now regard inflation of 3 to 3.5% as the new normal – above the RBA’s 2-3 per cent target band, and an outcome he said central bankers fear most.
What does this mean for the November cash rate decision?
Hauser framed the board’s dilemma as a choice between tightening further to tackle inflation – at the cost of weaker activity and employment – or holding to protect the labour market while accepting the risk that inflation becomes entrenched and more costly to bring down later. The RBA operates under a dual mandate of price stability and full employment.
Asked about next week’s September quarter CPI release, Hauser said the RBA already had two of the quarter’s three monthly readings and most of the market services data. Barring a very large downside surprise in the final month, he expected the quarterly figure to exceed the bank’s August assumptions, and acknowledged that market estimates of around 1% for quarterly trimmed mean inflation reflected where many forecasters sat.
On employment, recent Australian Bureau of Statistics (ABS) labour force figures may contain some noise following technical changes to the survey, but Hauser conceded the data were a little weaker than the RBA and others had expected. He stressed Australia’s unemployment rate remained near the bottom of G20 outcomes, and whether it would climb to 5% as being debated as part of the forecast round.
The major banks are divided. In early October, ANZ and Westpac were forecasting a November hike to 4.85%, while CBA and NAB expected the RBA to hold.
Mortgage holders under pressure, but buffers holding
Hauser acknowledged that higher rates were adding to the burden on mortgage holders, pointing to rising hardship rates and more calls to the National Debt Helpline. However, he noted only about 2% of mortgages were in negative cash flow – well below the 2024 peak – and the median borrower had more than a year’s worth of cash buffers set aside.
Low-income renters were bearing more of the pain from high inflation, per Household, Income and Labour Dynamics in Australia (HILDA) survey data, published in the RBA’s last Financial Stability Review, that showed 15% of renters in negative cash flow.
Hauser also challenged the public focus on mortgage repayments as the main way rate rises work. Of the four transmission channels in the RBA’s models, the household cash flow effect ranks last, with some models attributing up to two-thirds of the impact of interest rate changes to the exchange rate.
He described the housing market as undergoing a major correction. Cotality’s national Home Value Index fell 1.1% in September, leaving dwelling values 5.2% below their March 2026 peak.
Inflation data have wrong-footed rate expectations before this year: in January, softer November inflation figures briefly eased pressure on the RBA to lift the cash rate, before the board went on to hike four times. The RBA will release its updated forecasts alongside its decision on 3 November.
