SYDNEY, November 6 — The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.85 percent on Tuesday, the fifth increase this year and the highest policy rate since November 2008, as the board concluded that inflation would not return to the top of its target band until late 2027.
The decision was not unanimous. Six of the nine board members voted for the rise, while three argued for holding at 4.60 percent. In its statement, the bank said inflation remained too high, that fuel and other commodity prices had been pushed up by the conflict in the Middle East, and that domestic capacity pressure was slightly greater than previously assessed. It acknowledged that the series of increases had already tightened financial conditions, slowing growth, pushing house prices markedly lower and lifting unemployment, but judged that an upward revision to the inflation outlook and persistent upside risks required further restraint. Notably, the board dropped its previous reference to “further increases”, a language shift markets read as a possible end to the tightening cycle.
Michele Bullock, governor of the Reserve Bank of Australia, told reporters the move was “not the news that many Australians want to hear” but would prevent “even worse pain down the track”. She said the bank did not want to push the economy into recession and that its central forecasts showed no downturn, though growth was slowing “markedly” and consumption was sluggish. “People feel like it‘s a recession because they feel poorer,” she said, adding that she did not see the economy “cracking at this point”.
Jim Chalmers, the Australian treasurer, called the increase “difficult news” for households already paying a “hefty price,” noting that the full effect of earlier rises had yet to feed through and that the Middle East conflict had complicated the inflation task. Economists said further tightening remained possible if policy restraint proved insufficient to bring inflation back to target within a reasonable period. The RBA’s updated forecasts show headline inflation peaking at 4.5 percent in the December quarter, remaining above 3 percent until late 2027 — about three quarters later than previously expected — with a return to the midpoint of the 2–3 percent band not projected until mid-2028.
The rate decision also sharpened a domestic argument over fiscal policy. Finance Minister Katy Gallagher told parliament that savings measures blocked by lawmakers, rather than government reluctance, explained the absence of net savings, while shadow treasurer Tim Wilson rejected that account and renewed an offer of a bipartisan audit of public spending, arguing that claimed savings had been outpaced by new commitments.
Financial markets took the widely anticipated move in stride. The S&P/ASX 200 closed 30.3 points, or 0.34 percent, higher at 8,886.8, and the broader All Ordinaries gained 0.35 percent to 9,008.9, with real estate and consumer discretionary stocks leading gains while energy lagged, falling 3.45 percent. The Australian dollar eased to 69.82 US cents from 70.21 cents the previous afternoon.
For a small, open economy dependent on imported fuel and exposed to commodity prices, the episode illustrates the constraint now facing several advanced-economy central banks: an externally driven supply shock is keeping price pressure alive even as domestic demand weakens, leaving monetary authorities to balance an inflation mandate against a visibly slowing household sector.
— VGMG Asia-Pacific Economics & Markets Desk