Reserve Bank of Australia Raises Rates 25 Basis Points to 4.85% as Inflation Rises
Key Facts
The Reserve Bank of Australia raised its cash rate target by 25 basis points to 4.85% in a decision issued on 3 November, responding to renewed inflationary pressures. The bank said in its statement that inflation was now expected to remain above 3% over the coming year, with the risk of rising price expectations becoming entrenched increasing. The move followed September data showing the consumer price index rose 0.8% month on month and 4.3% year on year, compared with 4.0% in August. This was the bank’s fifth increase in 2026, bringing total monetary tightening this year to 125 basis points, exceeding the 75 basis points of cuts in 2025. Despite the rate increase, the Australian dollar fell as markets focused on the monetary policy board’s split and the bank’s less hawkish tone.
The Australian Bureau of Statistics said the September reading, published on 28 October, combined a 0.8% monthly price increase with annual inflation accelerating to 4.3% from 4.0% in August. The underlying inflation measure, the trimmed mean, rose to 3.6% year on year in September from 3.5% in August, following a revision to the previous reading. These figures put price pressures at the heart of the bank’s decision, after it said inflation was not expected to return to the midpoint of its 2–3% target range before mid-2028. The bank cited global fuel and goods price increases, as well as domestic price and cost pressures, in explaining its inflation outlook. It also said higher fuel and other commodity prices had been affected by the conflict in the Middle East, while tight domestic capacity and rising prices for technology-related goods amid investment in artificial intelligence had added to pressures.
According to Reuters, three members voted against the increase, giving greater weight to the risks of an economic slowdown amid a weak housing market and rising unemployment. Unemployment stood at 4.7%, its highest level in five years, the report said, while the central bank expected it to exceed 5% over the next two years. In forecasts reported by Reuters, headline inflation could reach 4.5% in the fourth quarter before falling to the 2%–3% range in the second half of 2027. These projections point to a difficult trade-off for policymakers: containing inflation while accounting for the effects of tighter monetary conditions on the labor and housing markets. The bank did not say the rate path had been settled, instead linking future decisions to incoming data, the outlook and risks.
Markets’ assessment of the bank’s tone was quickly reflected in the currency; Reuters reported that the Australian dollar fell 0.3% to 0.6977 U.S. dollars after the decision, as traders focused on what it described as a less hawkish tone. EL7’s daily closing data show the Australian dollar/U.S. dollar pair closed at 0.69977 on 2 November and at 0.69733 on 3 November. The bank also removed from its statement wording referring to the possibility of raising rates again if needed, while retaining its commitment to do what it considered necessary to return inflation sustainably to target. Governor Michele Bullock said the next rate move was unclear and described the increase as
the right time to pause and assess the economy’s response to tighter policy.
According to Reuters, the split vote suggested policymakers could be nearing the end of the tightening campaign, but the bank’s statement left the next decision dependent on data and the outlook.