Australia's central bank raises rates to 4.85%, highest since 2008

As of 6:56 a.m. ET, Tuesday, Nov. 3, 2026

The Reserve Bank of Australia raised its benchmark interest rate on Tuesday for the fifth time this year. It said inflation has spread through the economy and will take longer to bring back to target than it expected only a few months ago.

The bank's Monetary Policy Board lifted the cash rate target by 25 basis points to 4.85%, from 4.60%, according to the RBA's statement. The decision came Tuesday afternoon in Sydney, which was Monday night ET. The cash rate has not been this high since late 2008, ABC News reported.

The board was split. "Six members voted to increase the cash rate target by 25 basis points to 4.85 per cent; three members voted to leave the cash rate target unchanged at 4.60 per cent," the statement said.

Why the RBA says it moved

The board said inflation remains elevated and "broadly based," and that its staff had revised the inflation outlook "materially higher." Part of that reflects higher fuel and other commodity prices linked to the conflict in the Middle East. But the bank also said pressure on the economy's capacity was "a little tighter than earlier thought." It said AI-related investment is driving rapid price growth for technology-related goods, and that many firms report rising costs and are raising their prices or looking to do so.

The RBA now expects inflation to stay above 3% for the coming year. It does not expect inflation to reach the top of its 2% to 3% target range until late 2027, "around three quarters later than previously forecast." "This presents upside risks to inflation expectations," the board said, adding that some measures of those expectations have risen lately.

"The Board is conscious of the period in which inflation has been too high," the statement said. Given the revised outlook, the board "judged that a further tightening in financial conditions is warranted to support the return of inflation to target."

A slowing economy

The bank acknowledged that this year's rate increases are already biting. "The economy is slowing, housing prices have fallen significantly and the unemployment rate has risen," it said. It expects growth to slow further over the coming year and the jobless rate to rise by more than it forecast in August.

The RBA now forecasts unemployment to average 5.1% in the December quarter of 2028, up from the 4.8% it forecast in August, ABC News reported. The current rate is 4.7%.

The board also pointed to "heightened uncertainties." "The Middle East conflict remains unresolved, and there are scenarios where inflation is higher and activity lower than forecast," it said, adding that global oil supply disruptions are keeping upward pressure on energy prices.

At her news conference after the meeting, Governor Michele Bullock was asked whether the bank risked pushing Australia into recession. "We are not looking to tip the economy into recession if we can avoid it," she said, according to ABC News. "But we do need to get inflation down, and we do have excess demand at the moment."

Bullock said the bank's central forecast does not include a recession but does show growth slowing "markedly," ABC News reported.

What comes next

The board did not rule out further moves. It said it "will continue to do what it considers necessary to bring inflation sustainably back to target" and will be "attentive to the data."

Economists quoted by ABC News were divided. BetaShares economist David Bassanese said his base case is another increase in February 2027, though he expects the RBA to hold at its December meeting. EY chief economist Cherelle Murphy said the cash rate "is likely" restrictive enough to return inflation to target, but she said further increases are possible.

The increase is another blow to households with mortgages, while savers with high-interest accounts could earn more if their banks pass on the higher rate, ABC News reported.