RBA unveils latest cash rate decision

The Reserve Bank of Australia (RBA) has unanimously decided to increase the cash rate target from 4.60 per cent to 4.85 per cent.

This decision follows the RBA's monetary policy board meeting on Tuesday (3 November), which resulted in a majority vote by six out of nine members on the board.

In its monetary policy decision statement, the RBA board said: "Since the previous meeting, the data have confirmed that underlying inflation remains broadly based. Capacity pressures appear a little tighter than previously estimated and there are indications that higher fuel prices are being passed through to prices of other goods and services. Inflation is now expected to remain above 3 per cent for the coming year and there is an increasing risk that higher inflation expectations will become embedded."

In conversation with Accounting Times, CreditorWatch chief economist Ivan Colhoun told the brand that this rise was “well signalled” by the Reserve Bank.

“It reflects the bank's concern with inflation remaining too high. That really the big issue there is just the accumulation of cost increases for businesses, the accumulation of cost-of-living increases for consumers.

“It's not so much just inflation in the last year; it's the fact that inflation has been too high for a long period of time,” Colhoun said.

Colhoun noted that this rise will have flow-on effects on highly indebted businesses, who will pay more for their debt, and further impacts on household spending and sectors sensitive to rate changes.

“It affects consumer discretionary, sectors like retail, other services, and it particularly affects interest rate-sensitive sectors like real estate, residential construction.”

Although a rate rise will be a significant squeeze for many, Colhoun said that the sword is double-edged.

“Perhaps it's the lesser of two evils, where the Reserve Bank has been signalling we need slower growth to bring inflation down, and a slower rate of inflation would be better for everyone.”

Current drivers of insolvency

A slowing economy would have carry-on impacts on the number of business closures and tax compliance, Colhoun told the brand.

“As the economy slows, you would expect more invoices to extend further. You would also expect more insolvencies and tax defaults and more companies falling behind on their obligations to the ATO,” he added.

He noted that two of the longer-term drivers of insolvency are the level of interest rates, as well as energy prices — a combination of fuel, electricity, and gas prices.

“We've got quite a challenging blend of high interest rates and high fuel prices at the moment. That should unfortunately mean that we see more businesses slipping into insolvency.”

Colhoun noted that the Bank has now tightened the economy five times in a row in 2026.

“It takes time for interest rate rises to have their full effect. The likelihood is the Reserve Bank will sit back, have a look at the impact on the economy, and have a look at the impact on inflation.

“I think they'll at least wait until February, probably even a bit longer, to see how the economy responds and whether interest rates need to go even higher, or whether they can just remain at these newer higher levels for some time. I'm still not expecting any early reductions in interest rates in Australia.”