Australia Raises Cash Rate to 4.85%, Highest Since 2008, in Fifth Hike This Year

The update

Australia’s central bank raised its cash rate by 25 basis points to 4.85% on Tuesday, its fifth increase this year and the highest level since November 2008. The Reserve Bank of Australia said the decision was split, with six board members voting for the increase and three for a hold. Inflation rose 4.3% in the year to September, up from 4% in August. The bank expects inflation to remain elevated through much of 2027 and not return to its 2% to 3% target range until late 2027, three quarters later than previously forecast.

Why it matters

The move sets Australia apart from many global counterparts and lifts borrowing costs for more than 3.3 million households with home loans. Higher fuel and commodity prices, linked to a global oil shock from the war in the Middle East, are driving part of the pressure, alongside AI-related investment pushing up technology goods prices. Growth already slowed through the first half of 2026, and major banks have cut forecasts, warning of a sharper, longer slowdown.

What to watch

Markets will watch whether inflation eases enough to end the tightening cycle, or whether the bank hikes again. Governor Michele Bullock has said further increases will come if needed, while adding that a recession is not the bank’s base case.

Sources

• theguardian.com — confirms the rate rise, inflation figure and mortgage impact
• cnbc.com — confirms the split vote, target timeline and price drivers