RBA lifts its cash rate to 4.85% in a 6-3 vote and says inflation will stay high through 2027

The Reserve Bank of Australia raised its cash rate target by 25 basis points to 4.85% on Tuesday, according to the Monetary Policy Board's statement. The vote was not unanimous: six members backed the increase and three wanted to leave the rate at 4.60%. Australian outlets including 7NEWS and Real Estate describe it as the fifth hike this year, which we have taken from their headlines.

What the RBA says is driving it

The board says inflation remains elevated and "broadly based," and that its updated forecasts revise the outlook materially higher. It names several causes:

• Higher fuel and commodity prices tied to the conflict in the Middle East, with signs that fuel costs are being passed into other goods and services.
• Domestic capacity pressures a little tighter than earlier thought.
• Rapid price growth for technology-related goods, which the board links to AI-related investment.

Inflation is now forecast to stay above 3% for the coming year and not reach the top of the 2% to 3% target range until late 2027, around three quarters later than the bank previously expected.

The other side of the ledger

The same statement describes an economy that is already slowing. The board says housing prices have fallen significantly, unemployment has risen, and it expects the jobless rate to climb by more than it projected in August. Higher rates and weaker housing turnover are expected to weigh on home building and household spending. Business investment, including data centers, is forecast to be stronger in the near term. That mix is why three members dissented.

Who it hits

A quarter point is about $25 a year per $10,000 borrowed, so on a A$600,000 variable mortgage that is roughly A$1,500 more a year, or A$125 a month, if the lender passes it on in full. That is our arithmetic, not the RBA's or a lender's. Small businesses with floating-rate lines face the same math on their balances, while the board itself notes firms are raising prices to cover costs.

For readers outside Australia, the read-through is the cause: the RBA is tightening in part because of oil. Our own look at oil and diesel shows why energy-driven inflation is pulling central banks in the same direction elsewhere.

What to watch

Bloomberg's headline says Governor Michele Bullock signaled a pause after the split decision; we could not read the article, so treat that as unconfirmed here. The RBA statement itself says only that the board will be "attentive to the data" and will do what it considers necessary.

More: rates coverage.

Sources: Reserve Bank of Australia, 7NEWS, Real Estate and Bloomberg (headlines only), Yahoo Finance. This is market information, not investment advice.