The Reserve Bank of Australia has raised the cash rate target by 25 basis points to 4.85% in a 6–3 majority decision, with three members preferring to leave rates unchanged. The move, which was widely anticipated, marks the fifth rate increase this year and lifts borrowing costs to their highest level since late 2008.
The decision reflects persistent, broad-based inflationary pressures. Elevated fuel and commodity prices linked to the conflict in the Middle East, tighter domestic capacity constraints, and AI-driven demand for technology goods are all contributing to upward pressure on prices. Inflation is now expected to remain above 3% over the coming year and is not projected to return to the top of the 2–3% target band until late 2027.
At the same time, economic growth is forecast to slow, housing prices have fallen sharply, and unemployment is expected to rise by more than previously anticipated. The Board said that further policy tightening is warranted to prevent inflation expectations from becoming entrenched and to ensure that inflation returns to target on a sustainable basis.
