Australia's central bank lifts rates to 4.85%, an 18-year high, in a 6–3 vote

The Reserve Bank of Australia (RBA) on Tuesday raised its cash rate target by 25 basis points to 4.85%, the highest level since late 2008 and its fifth increase in 2026, according to the bank’s statement and ABC News.

A split decision

Six members of the Monetary Policy Board voted for the hike and three voted to keep the rate at 4.60%. Reuters noted that the bank also dropped a reference to raising rates further if needed; the Australian dollar slipped 0.3% to about $0.698 as markets bet on a pause in December.

Why the RBA moved

• Inflation is “broadly based”, the board said, and its staff forecasts were revised “materially higher”.
• Higher fuel and commodity prices linked to the Middle East conflict are feeding into other prices; AI-related investment is pushing up prices of technology goods.
• Inflation is now expected to stay above 3% until late 2027, about three quarters later than previously forecast, and reach the middle of the 2–3% target in mid-2028.

At the same time the RBA acknowledged that the economy is slowing, house prices have fallen significantly and unemployment has risen; it projects the jobless rate to reach a bit over 5% by the end of 2028.