Australians may be facing another interest rate rise on Melbourne Cup Day, with the Reserve Bank of Australia signalling it confronts difficult decisions at its upcoming November board meeting. The RBA's deputy governor has flagged the central bank is weighing the need to bring inflation under control against the risk of deepening financial pain for households and businesses across the country.
If the RBA proceeds with a rate increase at the November meeting, it would mark the fifth cash rate rise this year, adding further pressure to mortgage holders and borrowers already stretched by years of elevated living costs.
A 50-50 call on Melbourne Cup Day
Christian Bayliss, founder of Fault Lake Asset Management, described the prospect of a Melbourne Cup Day rate hike as an even bet, but warned the stakes could not be higher.
"It is a 50-50, but you can see that this is turning into an inflation emergency because it is high time now," Bayliss said. "We're getting to five and a half years that this inflation problem has been too elevated."
Bayliss noted that inflation had averaged 4.5 per cent per year since mid-2021, well above the RBA's target of 2.5 per cent. He argued this prolonged overshoot had pushed the overall price level roughly 10.5 per cent above where it should be if the target had been met consistently.
In practical terms, he said, that translates into a significant and very real burden on Australian families.
"That basically means households are getting hit with $14,000 more per annum today on their household budgets than had we been able to achieve the inflation target," he said. "When people feel angry, when they feel upset and they can't quite understand what it is that's wrong in the economy, that is the tangible number."
The cost of raising rates further
While Bayliss argued inflation must remain the central focus, he acknowledged that pushing rates higher carries its own serious risks. He warned that every 25 basis point increase in the cash rate could translate to roughly 15,000 foregone job opportunities across the economy.
That tension, between fighting inflation and protecting employment, sits at the heart of the RBA's dilemma heading into November. The deputy governor's remarks underscored that the bank is acutely aware of both sides of that equation as it prepares to make its decision.
Inflation expectations becoming entrenched
Beyond the immediate question of whether rates rise next month, Bayliss raised a longer-term concern: that Australians are beginning to accept elevated inflation as a permanent feature of their economic lives rather than a temporary disruption.
"The public is starting to learn that inflation is here to stay, and they are starting to learn that the public servants are not able to deal with it," he said.
This shift in community expectations is itself a risk, because when households and businesses begin pricing future inflation into their decisions, it can make the problem harder to dislodge. Bayliss questioned whether the root cause lay in pandemic disruptions, US President Donald Trump's economic policies or domestic government decisions, but was unequivocal about where ultimate responsibility sits.
"Ultimately, it's the RBA's job to put out the fire," he said.
A dysfunctional dynamic at the top
Bayliss was candid about what he sees as a troubled relationship between the federal government and the Reserve Bank, describing it as dysfunctional in its handling of the inflation challenge.
"Like any dysfunctional relationship, the blame goes back and forward to who's responsible for what," he said.
He argued that this ongoing failure to decisively address inflation was doing lasting damage to Australians' living standards, with families effectively subsidising years of missed targets through higher grocery bills, energy costs and everyday expenses.
The RBA's November meeting will be watched closely by millions of mortgage holders, economists and businesses. Whether the board pulls the trigger on a fifth rate rise this year, or holds steady while inflation remains well above target, the pressure on Australian households shows no sign of easing any time soon.
