Australia’s Reserve Bank raised its cash rate by a quarter-point to 4.85% on Tuesday, its highest level since 2008, as persistent inflation led six board members to support the increase and three to favor no change.
The November 3 decision raised the rate from 4.60% and was the fifth increase this year. The increase makes borrowing more expensive as policymakers try to bring price growth under control. Australia’s consumer price index was up 4.3% in September from a year earlier.
Underlying inflation reached 3.7% in the third quarter, adding to concerns that price pressures remain widespread. The RBA said its higher inflation outlook reflected rising fuel and other commodity costs, pressure on how much businesses in Australia can produce, and fast-rising prices for some technology goods amid investment linked to AI. The RBA now expects inflation to stay high through much of 2027.
It expects inflation to reach the top of its 2–3% target range only in late 2027, around three quarters later than it previously forecast. The bank also said the economy is slowing. It said housing prices have fallen significantly and unemployment has risen.
The bank expects unemployment to rise further. Higher interest rates are also expected to reduce household spending and homebuilding. The RBA still forecasts continued job growth.
The move may put more pressure on mortgage holders if lenders pass the increase on to them. Savers may benefit if banks raise deposit rates. The RBA says the outlook remains uncertain.