RBA Lifts Cash Rate to 4.85%, Highest Since 2008
Australia's central bank raised rates for a fifth time this year on a split 6-3 vote, but dropped wording about further hikes.
The Reserve Bank of Australia has lifted its cash rate to 4.85%, the highest level since 2008. It is the fifth rise of 2026, and the board was split on it.
Higher repayments for borrowers
The cash rate informs mortgage rates, so the hit lands on households with loans. More than 3.3 million of them have a home loan. Canstar estimates the latest rise adds $107 to the monthly interest payment on a $700,000 loan. Across this year's five hikes, repayments on that loan are up $532 in total.
Governor Michele Bullock acknowledged that this is not the news many Australians want to hear, but said it is what is needed to bring inflation down. "Some pain now will prevent even worse pain down the track," she said.
Slower growth, but no recession in view
The bank's forecasts show growth of 1.6% this year and 1.3% in 2027, well below an estimated potential rate of about 2%.
Unemployment is 4.7% now. The bank expects about 4.9% at the end of next year and a move above 5% in 2028, although employment would stay positive. Its economists see no evidence of recession over the next two years, even with a housing downturn they describe as one of the steepest of the past 50 years.
One forecast jumped. The bank nearly tripled its estimate for business investment growth in 2026, to 12%. It sees the global artificial intelligence boom continuing and adding to capacity issues in Australia.
Oil, public spending and the inflation path
Oil prices are one of the things the bank watches in its inflation outlook. The bank expects global prices to fall over the next 18 months yet remain relatively high, so fuel costs will stay a burden for motorists and businesses. The bank says risks to the inflation outlook still lean upward.
Public spending is politically contested. Amid a heated dispute over whether federal spending is to blame for high inflation, the RBA noted that public demand was weaker than expected in the first six months of 2026. It put that down to the winding back of cost-of-living measures and slower outlays on defence, disability and aged care.
Inflation hit 4.3% in the year to September, well above the bank's expectations, after the Middle East conflict worsened and any quick easing of the oil shock looked less likely. The forecasts have inflation pushing higher through the last months of 2026. It would fall back below 3%, inside the 2 to 3% target range, only toward the end of next year, a delay of roughly nine months.
A 6-3 vote and a change in wording
Six members of the monetary policy board voted for the hike. Three wanted to hold the cash rate steady.
Unlike earlier statements, the one issued after the meeting no longer spelled out that more hikes might be needed. Economists at major investment houses, including UBS, read the change from past statements as "clearly dovish". They took it to mean rates would likely stay where they are, at least in the short term.
Bullock told journalists that inflation needed to come down and that the bank would act as necessary to get it there.
Our View
Dropping the reference to further hikes gives the bank room to wait, but a 6-3 vote shows the board is not united on how long. The next inflation data, and how households cope with higher repayments, are the likeliest tests of that patience.
Source: the Guardian