Australia's Central Bank Hikes Rates for a Fifth Time This Year, Cash Rate Up to 4.85%

Australia's central bank, the Reserve Bank of Australia (RBA), has raised its policy interest rate for the fifth time this year. The cash rate has been lifted from 4.6 percent to 4.85 percent, its highest level since 2008.

The move is aimed at regaining control of surging inflation. Inflation jumped to 4.3 percent in the year to September, substantially stronger than the central bank had anticipated, driven by the ongoing global oil shock triggered by the war in the Middle East. After tough talk from senior central bank officials in recent days and weeks, the latest rise came as little surprise.

The decision was not unanimous, however. Six members of the monetary policy board voted for a hike, while three were in favour of holding the cash rate steady.

In its post-meeting statement, the board repeated that it will continue to do what it considers necessary to bring inflation sustainably back to target. The statement did not include an explicit reference to the potential need for further hikes, signalling that the RBA is now prepared to wait and see the effects of this year's five rate rises.

The back-to-back hikes will heap more pain on households with home loans, of which Australia has more than 3.3 million. According to Canstar, the latest rise will lift the monthly interest payment on a $700,000 home loan by $107, bringing the total rise in repayments over this year's five hikes to $532.

The RBA's latest forecasts, in its Statement on Monetary Policy (SOMP), showed a difficult period ahead. The country's cost of living crisis would extend for another year: inflation will push higher through the final months of 2026 and only return below 3 percent — within the bank's 2 to 3 percent target — by the end of next year, about nine months later than hoped.

Growth is also expected to stay weak. The economy would grow by 1.6 percent this year and by 1.3 percent in 2027, well below an estimated potential growth rate of around 2 percent. Yet despite a housing downturn described as one of the steepest over the past 50 years, the central bank's economists saw no evidence that the country was headed towards recession over the coming two years.

Unemployment, now at 4.7 percent, would end next year at around 4.9 percent, before creeping over 5 percent in 2028, the forecasts showed. Importantly, employment would remain positive.

Amid a heated political debate over whether government spending is to blame for high inflation, the RBA noted in its SOMP that public demand was weaker than expected through the first six months of 2026. That was the result of cost of living measures rolling off and moderating spending in areas such as defence and disability and aged care services, the statement said.

Global oil prices would ease over the coming 18 months but still remain relatively elevated, according to the forecasts, suggesting limited relief from high fuel costs for motorists and ongoing high costs for businesses. Meanwhile, there was no end in sight for the global artificial intelligence boom: the RBA nearly tripled its forecast for business investment growth in 2026 to 12 percent.

Overall, the central bank's assessment is that the risks to the inflation outlook are still skewed to the upside — meaning the pressure on borrowing households from this series of hikes is set to linger.