Reserve Bank of Australia raises cash rate to 15-year high of 4.60%

Cash rate reaches 15-year peak

The Reserve Bank of Australia raised its cash rate target by 25 basis points to 4.60% on Tuesday, marking its fourth rate increase of 2026 and taking borrowing costs to their highest level since October 2011. The nine-member monetary policy board voted unanimously for the decision, bringing cumulative monetary tightening across the year to 100 basis points. In currency markets, the Australian dollar fell 0.4% after the release, while three-year government bond yields dropped six basis points to 4.974%. Financial markets priced a 33% probability of another rate rise in November at the board's Melbourne Cup day meeting, while almost fully pricing in a subsequent increase by February.

Global energy disruptions and domestic demand

The central bank attributed renewed price pressures to compounding international supply shocks and robust domestic demand. Global crude oil prices rose from just over $70 per barrel in late June to above $100 per barrel, with Brent crude advancing nearly 20% since the RBA's August meeting. Refining crack spreads for gasoline and diesel remained elevated following infrastructure damage in Russia and the Middle East, while the United States and China curtailed strategic reserve drawdowns. In Australia, underlying inflation climbed from a low of 2.8% in June 2025 to 3.3% in February and 3.6% in July, staying outside the central bank's 2% to 3% target range. Domestic capital spending added further pressure, led by a data centre investment boom that Westpac valued at up to A$175 billion following observations by RBA Deputy Governor Andrew Hauser during a visit to the United States.

Strategy and inflation target horizons

Governor Michele Bullock explained that the board deliberated on keeping rates unchanged before deciding that materialising inflation risks required further tightening. Australia's unemployment rate stood at 4.6%, up one percentage point over four years, an outcome Bullock described as low by past standards compared to foreign economies that reduced inflation through larger employment losses. Bullock noted that inflation had stayed outside the RBA target band for six years, warning that permanent increases in fuel, fertiliser, and transport costs risked embedding higher business pricing.

What we are predicting -- what is the hope here -- is that this will be restrictive enough, those four interest rate increases, to bring things down. Now, will it be enough? I don't know

Household impact and political friction

The rate hike adds immediate strain to indebted households across major metropolitan areas. For an average new mortgage of $731,000 at a 6.2% interest rate, the decision increases monthly payments by approximately $119 to $4,477. Research published by Roy Morgan estimated that 1.8 million mortgage holders, or nearly one-third of Australian borrowers, were experiencing mortgage stress in July by spending between 25% and 45% of after-tax income on debt servicing. Treasurer Jim Chalmers defended federal fiscal policy and cited global inflationary forces, while shadow treasurer Tim Wilson argued that excessive government expenditure contributed to the rate rise.

Inflation and interest rates are going up around the world but we know that doesn't take the sting out of today's decision.