The Reserve Bank of Australia has raised the cash rate by 25 basis points to 4.85 per cent, the highest level since late 2008 and the fifth increase of 2026. The decision was not unanimous. Six board members voted to lift the rate and three voted to hold at 4.60 per cent. The statement did not name the dissenters.
The Board said inflation remains elevated and broadly based, and that its forecasts have been revised materially higher. It pointed to fuel and commodity prices pushed up by the Middle East conflict, domestic capacity pressures tighter than first thought, and rapid price growth for technology goods driven by AI-related investment. It also warned of a growing risk that higher inflation expectations become embedded.
The RBA now sees headline inflation peaking at 4.5 per cent in the December quarter. Both headline and underlying inflation are expected to stay above 3 per cent until late 2027, about three quarters later than forecast in August. Inflation is not expected to return to the 2.5 per cent midpoint of the target band until mid-2028.
The Board said “a further tightening in financial conditions is warranted”. It stopped short of promising more, saying only that it will watch the data and do what is necessary. Analysts noted the statement carried no explicit commitment to further hikes.
An economy under strain
The RBA acknowledged that earlier rate rises are working. Growth is slowing, housing prices have fallen significantly and unemployment has risen. The bank expects the jobless rate to reach 5.1 per cent by the end of 2028. Unemployment hit 4.7 per cent in September, a five-year high, as 39,000 jobs were lost. Strong business investment, including in data centres, is partly offsetting weaker household spending and dwelling construction.
What it means for borrowers
Canstar estimates the five rises since February add about $456 a month to repayments on a $600,000 loan. The average new owner-occupier loan has nearly tripled since 2008, from $254,000 to $731,000. That means the same cash rate now bites much harder than it did the last time rates were this high.
The year’s path has been steep. The cash rate rose from 3.60 to 3.85 per cent in February, to 4.10 per cent in March and to 4.35 per cent in May. The Board then held in August before lifting to 4.60 per cent in late September.
What comes next
All four major banks had tipped the move. CBA described it as an insurance hike against inflation staying higher for longer. ANZ warned of a material risk the cash rate reaches 5.10 per cent in December or February, while Westpac’s Luci Ellis said February was the most likely timing if the RBA moves again. NAB expects a pause after November but says the RBA is a long way from declaring victory on inflation. RBA
NAB chief economist Sally Auld told the ABC “we are in for a period of reasonably elevated rates for a while yet.” abc
CBA expects a hold until cuts in August and November 2027. It forecasts unemployment peaking at 5.1 per cent, growth slowing to 1.0 per cent by mid-2027, and national home prices falling about 14 per cent peak to trough.
Politics and the global backdrop
The decision has sharpened the argument over who is responsible. Treasurer Jim Chalmers has blamed the Iran war for the inflation pressure. Shadow Treasurer Tim Wilson says government spending is behind persistent inflation that predates the war. The hike adds pressure on the Treasurer to find savings in December’s mid-year budget update.
The global picture is mixed. Brent crude fell more than 7 per cent overnight, to about US$105 a barrel, on hopes of US-Iran talks. The RBA, however, assumes oil prices stay well above pre-conflict levels. Australia now has a higher official rate than New Zealand (2.75 per cent) and Canada (2.5 per cent).
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