Reserve Bank Governor Michele Bullock reveals rate hike discussed at December meeting

Reserve Bank of Australia Governor Michele Bullock has revealed her board members discussed hiking rates in 2026, with NAB now warning of a February rate rise.

In a unanimous decision, the RBA’s monetary policy board on Tuesday left the cash rate on hold at 3.6 per cent for the third consecutive meeting.

But Ms Bullock revealed a hike was now the most likely next move next year, instead of a cut, with the RBA “alert to the signs of a more broad-based pick-up in inflation”.

“We didn’t consider the case for a rate cut at all,” she told reporters in Sydney.

“We didn’t explicitly consider the case for a rate rise at this meeting, but we did consider and discuss quite a lot the circumstances and what might need to happen if we were to decide that interest rates had to rise again at some point next year.

“Certainly, there was no cut on the table and no one suggested that there be a cut.”

With unemployment still low, the RBA chief also noted there was “more tightness in the economy than previously assessed” and declined to rule out a February hike.

“If inflation continues to be persistent and looks like it is not coming back down, towards the board’s target, the board might have to consider whether or not it’s appropriate to keep interest rates where they are or in fact at some point raise them,” Ms Bullock said.

“I wouldn’t put a timing on that. It’s going to be a meeting-by-meeting decision.”

National Australia Bank chief economist Sally Auld seized on Ms Bullock’s comments to suggest “February is now a live meeting for a rate hike”.

The RBA an hour earlier had released a statement saying inflation “may be persistent and will bear close monitoring” with Ms Bullock explaining “it’s very uncertain what is temporary and what is persistent”.

In another sign rate cuts are clearly off the table, the RBA suggested its rate cuts in February, May and August had yet to fully boost economic activity.

“Financial conditions have eased since the beginning of the year, credit is readily available to both households and businesses and the effects of earlier interest rate reductions are yet to flow through fully to demand, prices and wages,” it said.

The futures market is now predicting a rate hike instead of relief in 2026 that would reverse the last rate cut in August and add $111 to monthly mortgage repayments on a typical $694,000 loan, adding up to $1332 over the year.

Treasurer Jim Chalmers suggested borrowers had already given up hope, a day after he declined to extend the $300 annual electricity rebates into 2026.

“A lot of Australians would have wanted some more rate relief but wouldn’t have expected it,” he said.

EY chief economist Cherelle Murphy said a hike in 2026 was now more likely.

“Any continuation of recent inflation changes and upgraded inflation forecasts will likely come with tighter monetary policy in 2026,” she said.

Cotality head of research Tim Lawless said a rate hike was now something that had to be considered if inflation failed to moderate.

“Any signs of a further pick-up in inflation would likely be met with a more hawkish stance from the RBA,” he said.

Headline inflation soared by 3.8 per cent in the year ended October 31, which was the highest level since mid-2024 and further above the RBA’s 2-3 per cent target.

This occurred after Queensland ended its $1000 annual rebates at the end of June as Western Australia scrapped its $400 subsidy.

Underlying inflation without volatile items, known as the trimmed mean, climbed by 3.3 per cent.

A fall in unemployment back to 4.3 per cent in October, down from a four-year high of 4.5 per cent in September, is also adding to labour costs, even if the wage price index had eased.

“Measures of labour underutilisation remain at low rates, surveyed measures of capacity utilisation are above their long-run average and business surveys and liaison continue to suggest that a significant share of firms are experiencing difficulty sourcing labour,” the Reserve Bank said.

“Broader measures of wages continue to show strong growth and growth in unit labour costs remains high.”

Australia’s economic growth pace of 2.1 per cent in the year ended September 30 is weak by historic standards but that wasn’t mentioned in the RBA statement.

“The economy is still treading water, but the RBA’s fear is that if it does any better, it may re-ignite inflation,” Deloitte Access Economics partner Stephen Smith said.

Australia’s weak productivity could also keep inflation high if wage costs were passed on to consumers, KPMG chief economist Brendan Rynne argued.

“While the pace of economic growth is not stellar, there is evidence that in the current low-productivity environment it is still exerting upward pressure on prices,” he said.