RBA Lifts Cash Rate to 4.85%, Its Fifth Hike This Year
The Reserve Bank of Australia raised its benchmark cash rate by 25 basis points to 4.85% on Tuesday. That is the highest level since November 2008, and the central bank is lifting rates while growth slows.
The squeeze on households and growth
A higher cash rate usually feeds through to the cost of loans. The bank is balancing its fight against prices with the strain that dearer loans and living costs put on households and on activity.
Growth has cooled in the first two quarters of 2026. Australian GDP growth slowed to 2.1% year on year in the June quarter, from 2.5% in March.
Asked whether she sees a recession, Governor Michelle Bullock said it is "not our base case at the moment."
Why prices keep climbing
Consumer prices rose 4.3% in September, up from 4% in August, the fastest pace since March.
The RBA blames higher fuel and other commodity prices. It also named AI-related investment, which it says is driving rapid price growth for technology-related goods.
At its September decision, Bullock called inflation too high. She tied that to higher oil prices from the Iran War and stronger domestic spending, and said further increases would follow if needed to bring it down.
A later return to target
The bank pushed back its forecast. It now expects inflation to "remain elevated through much of 2027." The 2%-3% target range is not seen until late 2027, three quarters later than previously forecast.
A divided board, and a fifth hike
Economists polled by Reuters had expected the move. It is the bank's fifth increase this year, and it was not unanimous: six members voted to hike, while three preferred to hold.
Our view
A 6-3 split suggests the board is divided about how much more tightening the economy can take. The next inflation and growth data will show how long the case for further hikes holds.
Source: CNBC