Reserve Bank Raises Cash Rate to 4.85 per Cent
Australia’s central bank lifted its benchmark interest rate by 0.25 percentage points to 4.85 per cent, reaching its highest level since November 2008. The decision marks the fifth time the Reserve Bank of Australia has increased borrowing costs in 2026.
The policy move came via a split vote. Six members of the Monetary Policy Board voted for the increase, while three opted to hold the rate steady. The decision contrasts with the Reserve Bank of New Zealand’s choice on October 28 to leave its Official Cash Rate unchanged at 2.75 per cent.
Inflation Forecasts Revised Higher Through 2027
Updated staff forecasts show inflation remaining elevated through much of 2027, according to the RBA statement. Officials now do not expect consumer price growth to reach the 2 to 3 per cent target range until late 2027, roughly three quarters later than previously projected.
Higher fuel and commodity prices driven by the conflict in the Middle East partly explain the upward revision, alongside tighter-than-expected domestic capacity pressures. Rapid price growth for technology goods, fueled by artificial intelligence-related investment, also contributed to persistent inflation across many goods and services.
Political Clash Over Public Spending and Economic Pain
Treasurer Jim Chalmers stated that higher fuel prices resulting from the Middle East conflict were the “primary driver” for the recent inflationary surge. Meanwhile, opposition leader Angus Taylor argued that government spending fueled the increases, telling voters that Labor’s spending spree is driving up inflation and interest rates.
Reserve Bank Governor Michele Bullock defended the central bank’s independence at a Sydney press conference. She noted that public and private demand together make up aggregate demand, adding that aggregate demand exceeding the economy’s supply capacity leads to inflation.
Monetary board tightens financial conditions amid slowing economy
The RBA Monetary Policy Board reported that cumulative rate hikes this year have tightened financial conditions, while the economy is slowing, housing prices have fallen significantly this year, and the unemployment rate has risen. The consumer price index rose 4.3 per cent in September, up from 4 per cent in August and marking its highest level since March.
When asked if she sees a recession for Australia, Governor Bullock stated that it is “not our base case at the moment.” The Reserve Bank does not want consumer prices to come down, but to rise more slowly. Governor Bullock also stated: I want to be absolutely clear here,
adding that the board’s dual mandate is still in play here.
Responding to questions about future policy moves, Bullock noted that further increases in rates are possible, if the board thinks the tightening in conditions are unable to get inflation back to target in a reasonable time frame.
She also stated that we’re seeing signs that upside risks to inflation are materializing,
and that additional hikes will come if that’s what’s needed to get inflation down.
Reserve bank raises interest rates to combat inflation
Why did the Reserve Bank raise interest rates again?
The RBA acted to combat persistent inflation that is now forecast to remain elevated through much of 2027. Officials aimed to prevent people’s inflation expectations from drifting higher.
How does the new cash rate compare to historical levels?
The 4.85 per cent benchmark cash rate is the highest it has been in Australia since November 2008, following five rate increases throughout 2026.
What is the current timeline for inflation to return to target?
The RBA does not expect inflation to fall back into its 2 to 3 per cent target range until late 2027, which is approximately three quarters later than its previous forecast.
How many board members supported the rate hike?
The decision was split six to three, with six members voting to lift the cash rate and three voting to hold it.
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