The Reserve Bank of Australia (RBA) raised its cash rate by a quarter of a percentage point to 4.85 per cent on Tuesday 3 November. It is the highest rate since 2008 and the bank's fifth increase this year. The decision was not unanimous: six members of the monetary policy board voted to raise rates and three voted to hold at 4.60 per cent.
"Inflation is too high, and our forecasts suggest it will stay higher for longer," said Michele Bullock, the governor. In its statement the bank said that inflation "remains elevated" and that recent data showed it was "broadly based".
Headline inflation reached 4.3 per cent in September. The trimmed mean, the bank's preferred measure of underlying inflation, was 3.7 per cent in the September quarter. The RBA now expects headline inflation to end 2026 at 4.5 per cent and not to return to the top of its 2-3 per cent target band until late 2027, about three quarters later than it previously forecast. It expects wages to rise by 3.4 per cent against prices rising 3.7 per cent, so real pay would fall this financial year.
Homegrown or imported?
Ms Bullock said the bank was not tightening because of the direct effect of higher oil prices from the war in the Middle East. She pointed instead to pressure on the economy's capacity that predated the conflict, and to heavy investment in data centres. Jim Chalmers, the treasurer, blamed the war. Angus Taylor, the opposition leader, called the inflation problem "homegrown".
A dovish hike
Markets had priced in an increase, and the statement's tone mattered more. The bank dropped its explicit bias towards further tightening, and Ms Bullock said: "I don't know what the next move will be." The Australian dollar fell 0.3 per cent to 69.76 US cents, while the ASX 200 closed 0.3 per cent higher.
Economists are divided. Capital Economics said it believed "the Bank is now done tightening", though it does not expect cuts until late next year. Commonwealth Bank expects the rate to peak at 4.85 per cent and cuts to begin in August 2027. Betashares expects at least one more increase, probably in February.
For households the cost is mounting. On a A$600,000 mortgage, monthly repayments are about A$456 higher than at the start of the year. Canstar, a financial comparison site, estimates that about one in ten borrowers may struggle to keep up.
