Australia's central bank lifts cash rate to 4.85%, highest since 2008, in fifth hike of 2026

A split decision

The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.85% on Tuesday, 3 November, its fifth increase this year and the highest level since 2008. The board voted 6-3, with three members preferring to leave the rate at 4.60%. Before the decision, markets implied an 88% chance of a move, and 30 of 32 economists polled by Reuters had expected a hike. The statement dropped a reference to raising rates further if needed, and Governor Michele Bullock said it was unclear what the next move would be. Speaking to reporters, she said:

“I know this is not the news that many Australians want to hear, but it is what's needed to get inflation down.”

Inflation outlook

The RBA now expects headline inflation to reach 4.5% in the fourth quarter of 2026, before it returns to the 2 to 3% target band. Headline inflation was 4.3% in the year to September, while underlying inflation, which strips out volatile items such as fuel, reached 3.6% over the same period. The bank no longer expects inflation to fall into that band until late 2027, three quarters later than its previous forecast. It attributed part of the revision to fuel and commodity prices linked to the conflict in the Middle East, along with rapid cost increases for technology tied to AI investment.

Headline, year to September4.3%

Underlying, excluding volatile items, year to September3.6%

Headline, year to September

4.3 %

Underlying, excluding volatile items, year to September

3.6 %

Data from the article text

Households and growth

More than 3.3 million households with home loans face higher repayments. Canstar calculated that the latest rise adds $107 a month to repayments on a $700,000 loan, taking the total increase across this year's five hikes to $532. Ms Bullock said the new central forecast has growth slowing markedly, although it does not see the economy falling into recession. Unemployment rose to 4.7% last month, and the RBA expects it to climb above 5% over the next two years. House prices have been slumping, and HSBC economists had warned that a fifth rise risked pushing the economy into recession. Two banks on Monday cut their growth forecasts, with CBA analysts warning of a "sharper, longer slowdown".

Government and the election

Prime Minister Anthony Albanese, speaking in Antigua at a Commonwealth leaders' meeting ahead of the decision, pointed to external causes:

“Global inflation is having an impact because of the closure of the Strait of Hormuz.”

Treasurer Jim Chalmers said the decision "will be difficult news for many Australians" already paying a high price for circumstances outside their control. The government has flagged savings in the mid-year budget update in December, but significant cuts risk fresh anger among voters. Chalmers rejected a suggestion that he should step aside as treasurer. The next federal election is due in the early months of 2028.

What comes next

Markets have trimmed their bets on another hike before Christmas, although a further increase by May 2027 remains possible. The statement suggests the bank may pause over the summer to assess how the five increases are working. The board said it would keep acting as its judgement requires to lift inflation back to target on a sustainable basis, and Bullock said the next move in rates remains unclear.