Australia's central bank raised its cash rate to an 18-year high on Tuesday, delivering the fifth increase of the year that hot September-quarter inflation data had all but locked in last week, Reuters reported.
Source: Reuters via WNFL
Wrapping up its November policy meeting in Sydney, the Reserve Bank of Australia (RBA) board lifted the cash rate target by 25 basis points to 4.85 per cent, its highest level since December 2008. The decision was not unanimous: six board members voted for the rise and three voted to leave the rate unchanged at 4.60 per cent, the RBA said in its monetary policy decision statement. The new rate takes effect on November 4.
The board said the rise was warranted by a worsening inflation outlook. 'Given the revised inflation outlook and the continuing upside risks, the Board judged that a further tightening in financial conditions is warranted to support the return of inflation to target,' it said, adding: 'The Board will continue to do what it considers necessary to bring inflation sustainably back to target.' Reuters noted the statement dropped an earlier reference to raising the cash rate further if needed — a less hawkish tone that markets read as a signal the bank may be nearing the end of its tightening campaign.
Forecasts pushed back: inflation above 3% for another year
The RBA's updated forecasts, published with the decision, now show inflation staying above 3 per cent for the coming year and not reaching the top of its 2 to 3 per cent target band until late 2027 — roughly nine months later than the bank forecast in August — with a return to the middle of the band not expected until mid-2028. Headline inflation is forecast to peak at 4.5 per cent at the end of 2026. Unemployment, which rose to 4.7 per cent in September, is also expected to climb by more than the bank previously forecast.
The move was widely expected. Thirty of 32 economists polled by Reuters had forecast a hike, and markets had priced an 88 per cent chance of one after the September-quarter data showed headline inflation at 4.3 per cent and underlying inflation running well above the RBA's own forecasts. The Australian dollar slipped about 0.3 per cent to around US$0.698 after the decision as traders strengthened bets on a pause at the next meeting. The 125 basis points of tightening this year has more than reversed the 75 basis points of cuts delivered in 2025, putting Australia at the hawkish end of developed-world central banks, Reuters reported.
Higher cash rates flow quickly into variable mortgage repayments in Australia. One mortgage-broker estimate put the added cost of this single rise at about A$99 a month on a A$600,000 variable loan, on top of the year's four earlier increases. Australia is home to one of the largest Punjabi and Indian diaspora communities in the world, and many recent migrants who bought homes in Sydney, Melbourne, Brisbane and Perth in the past few years hold variable-rate loans — for them, and for international students and new arrivals paying rents in a tight market, a fifth rise this year tightens budgets further even as the bank signals it may pause.
Attention now turns to the RBA's final meeting of the year, on December 7–8, with the decision due on December 8. Economists at three of Australia's big four banks — CBA, NAB and Westpac — do not expect another rise in December, while ANZ has flagged a risk that the cash rate could reach 5.10 per cent in December or February. The minutes of Tuesday's meeting, due on November 17, will be read closely for what the three dissenting members were most worried about, and October jobs figures on November 19 and October inflation data on November 25 are the next tests of whether the bank can stop here.
The decision follows last week's inflation figures, which showed prices rising 4.3 per cent in the year to September and all but sealed the case for this rise. Read: Australia's inflation runs hot again — 4.3% in September
For now, the RBA has not promised to stop, and it has not promised to continue: its statement says only that it will do what it considers necessary. With inflation forecast to stay above the target band for another year and the board split 6–3, December's meeting is live in a way it was not before Tuesday's narrow vote.