Australia’s central bank raises rates to 4.85% as inflation pressures widen

Key Facts

The Reserve Bank of Australia’s monetary policy board raised its cash rate target by 25 basis points to 4.85% at its meeting on November 3, 2026, underscoring persistent inflation pressures. In its statement, the bank said inflation “remains high” and recent data point to a broadening across components of the economy. It added that inflation forecasts had been revised up significantly. The increase puts borrowing costs at their highest since December 2008, when the rate reached 5.25%. The bank had raised rates to 4.60% at its previous meeting on September 29, in a unanimous decision.

The decision was underpinned by consumer price data showing the index rose 4.3% in the 12 months through September, compared with a 4.0% increase in the 12 months through August. Annual trimmed-mean inflation, which excludes the most volatile movements, rose to 3.6% from 3.5% in the previous period. The bank said inflation was likely to remain above 3% over the coming year, with a growing risk that inflation expectations become entrenched at higher levels. The bank also faces continued price pressures among producers: the final-demand price index rose 1.1% in the September quarter and 3.6% year over year. The Australian Bureau of Statistics attributed the quarterly increase mainly to construction and services, with rents and labor costs continuing to exert pressure.

The bank said investment in artificial intelligence was driving a rapid rise in prices for technology-related goods. In its latest forecasts, inflation is not expected to return to the upper end of the 2–3% target range before late 2027, about three quarters later than previously expected. The bank said higher global fuel prices and domestic price and cost pressures would delay inflation’s return to the midpoint of the target range until mid-2028. The forecasts reflect a longer path back to target, even as the cost of tightening begins to show in economic activity. The bank said this year’s rate increases would help slow spending, adding that “slower spending is needed to bring inflation down.”

The bank, by contrast, said rate increases since the start of the year had tightened financial conditions, while the economy was slowing, house prices had fallen and unemployment had risen. Reuters quoted Governor Michele Bullock as saying a pause to assess the economy’s response to tightening was “appropriate” after five rate increases this year. Bullock warned, according to the report, that inflation risks were tilted to the upside. The bank expects GDP growth to slow over the coming year, with spare capacity emerging in the labor market during 2027. It also expects the unemployment rate to exceed 5% by the end of 2028, about a quarter of a percentage point higher than its previous forecast.

Markets moved in opposite directions after the decision: the Australian dollar fell 0.3% to $0.6977, while the S&P/ASX 200 closed 0.3% higher at 8,880.50 points. Reuters reported that bets on rates being held at the next meeting strengthened after the increase and Bullock’s remarks. This follows the bank’s September rate increase to 4.60%, when it described inflation as high and pointed to energy price pressures, AI-related demand and domestic capacity constraints. The September increase was unanimous, according to the bank’s statement. The November decision came amid higher inflation forecasts, alongside signs of a slowing economy, falling house prices and rising unemployment.

Minutes of the November meeting are due to be published on November 17, providing details of the monetary policy board’s deliberations. The board will then meet on December 7 and 8, 2026, with the decision to be announced on the second day at 2:30 p.m. Australian Eastern Daylight Time. The bank expects inflation to return to the midpoint of its 2–3% target range by mid-2028. It also expects spare capacity to emerge in the labor market during 2027 and the unemployment rate to exceed 5% by the end of 2028. These forecasts form part of the backdrop to the next decision, following November’s increase, which kept high inflation and the risk of entrenched inflation expectations at the forefront of the bank’s considerations.