Key Notes
- The RBA raises its cash-rate target by 25 basis points to 4.85%, effective November 4, following a 6–3 vote.
- Five increases this year have more than reversed the interest-rate cuts delivered in 2025.
- Inflation is forecast to remain above 3% through the end of 2027 as housing and economic growth weaken.
Australia’s central bank raised its cash-rate target to 4.85% on November 3, the highest level since late 2008, as persistent inflation outweighed signs that higher borrowing costs are slowing the economy.
The Reserve Bank of Australia increased the benchmark by 25 basis points from 4.60%, with the new setting taking effect on November 4. Six members of its Monetary Policy Board supported the increase, while three preferred to leave rates unchanged, according to the bank’s decision.
It was the fifth increase this year. The move brings fresh pressure on mortgage borrowers and interest-sensitive businesses, while underscoring a difficult policy trade-off: inflation is taking longer to subside even as housing prices fall and unemployment rises.
Five Rate Hikes Reverse Last Year’s Cuts
The RBA’s rate history shows increases in February, March, May, September and November, each of a quarter percentage point. Together, they have lifted the target by 1.25 percentage points from 3.60% at the end of 2025.
That more than reverses the 0.75 percentage points of easing delivered during 2025. The new 4.85% target also exceeds the 4.75% level that prevailed during much of 2011; the previous period with a higher setting was November 2008, before the bank cut to 4.25% that December.
The split vote shows that policymakers did not agree on the need for another immediate increase. However, the announcement does not identify a predetermined stopping point, and the minority’s preference to hold is not a commitment by the board to pause in December.
Inflation Stays Above Target for Longer
Official inflation data show consumer prices rose 4.3% in the year to September, up from 4.0% in August. Monthly trimmed-mean annual inflation, which reduces the influence of unusually large price changes, increased to 3.6% from a revised 3.5%.
The monthly headline CPI rose 0.8% before seasonal adjustment, or 0.6% on a seasonally adjusted basis. These monthly observations are distinct from the September-quarter annual readings cited in the RBA’s forecasts: 3.9% for headline inflation and 3.7% for the quarterly trimmed mean.
The bank’s November outlook now projects headline and underlying inflation remaining above 3% through the end of 2027 and returning to the 2.5% midpoint of its target range in mid-2028. Higher energy costs and domestic capacity pressures have pushed that expected return further out.
The board is also concerned that sustained price increases could become embedded in inflation expectations. Its statement points to businesses passing on higher costs and to AI-related investment adding pressure to prices for technology goods.
Weaker Housing Makes the Trade-Off Harder
Higher rates are already restraining financial conditions. The RBA said housing prices in September were almost 5% below their March peak, while unemployment averaged 4.6% in the September quarter, higher than it had expected.
The central bank forecasts below-trend economic growth and unemployment rising to a little above 5% by the end of 2028. Employment is still expected to grow, so a rising unemployment rate does not necessarily mean the total number of jobs will decline.
That leaves the RBA trying to reduce demand without unnecessarily deepening the slowdown. Interest rates cannot directly restore disrupted oil supplies, but they can influence spending and the extent to which higher input costs spread through the economy. Strong data-center investment is providing some support to business activity even as households face tighter budgets.
What Higher Rates Mean for Household Budgets
The cash-rate target is an overnight benchmark between banks, rather than the rate charged on every home loan or paid on every savings account. Commercial lenders decide whether, when and how fully to pass a change through to customers.
For illustration, a full 0.25-percentage-point increase on an interest-only A$600,000 loan would add about A$1,500 a year, or A$125 a month, at an unchanged balance. That is an interest-cost calculation, not a quoted increase in repayments on a principal-and-interest mortgage.
Conversely, an extra 0.25 percentage points on A$100,000 of savings would generate A$250 more annual interest before tax if the balance stayed constant. Actual returns depend on the bank’s rate and account conditions; a policy increase does not guarantee an equivalent improvement for every depositor.
December Brings the Next Policy Test
The RBA’s next scheduled rate announcement is December 8. Its decision will depend on incoming data and the evolving inflation outlook, rather than an automatic continuation of November’s move.
Australia’s increase contrasts with October’s rate holds in the United States and eurozone. As we reported, the Federal Reserve paused despite inflation concerns; the ECB did the same. For investors, the common question is how much tightening economies can absorb while energy costs keep price pressure elevated.
