The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.85%, the highest level since late 2008, The Conversation reported. This was the fifth rate increase in 2026, bringing the total rise since February to 1.25 percentage points. The board vote was split, with six members voting to raise the rate and three voting to hold it at 4.60%.
The bank revised its inflation forecasts materially higher, with inflation forecast to stay above 3% through the coming year and not return to the top of the 2-3% target range until late 2027, nine months later than previously forecast. Headline inflation on an annual basis moved from 4% in August to 4.3% in September, while the trimmed mean measure climbed from 3.5% to 3.6%.
Fuel prices in Australia rose 9.4% in September alone, with higher global oil prices linked to the conflict in the Middle East contributing to inflation. The RBA also revised up its forecast for Australia's unemployment rate, expecting it to reach 5.1% at the end of 2028, compared with a current five-year high of 4.7%.
The five 2026 rate rises together have pushed monthly interest repayments more than $450 above February levels for a borrower carrying a $600,000 loan, according to financial comparison site Canstar. Taken together, the five rate increases are estimated to lift average monthly repayments by about $600. Macquarie Bank said it would lift its variable home loan reference rates, along with rates on transaction and savings accounts, with effect from 19 November.
RBA Governor Michele Bullock, when asked whether further rate hikes were coming, said she did not know what the next move would be, noting the most recent hikes had not yet fully flowed through. She said it was a reasonable point to pause and assess incoming data to check whether conditions were tracking broadly in line with forecasts.
Bullock said the RBA was attempting to balance reducing inflation while avoiding tipping the country into a recession where possible, but acknowledged that Australia's weak economy would make people feel as though they were in one because they feel poorer and their spending and incomes are not growing quickly. She told reporters in Sydney that the cost-of-living pressures were largely a domestic, homegrown inflation problem, and that monetary policy cannot affect global oil prices.
BetaShares economist David Bassanese said a definitive answer on whether 4.85% would be enough remained elusive, noting that two further increases before mid-2027 could not be dismissed, and naming February 2027 as his base-case timing for the next move. He added that back-to-back increases in September and November meant the board would likely pause at the December meeting, giving households some Christmas-period breathing room.
Westpac, NAB and Commonwealth Bank economists predict rate cuts may begin from August 2027, while ANZ economists predict the first cut could come in November. Economists at Commonwealth Bank and NAB each forecast that the higher rate setting would drag Australia's economic growth back to one per cent in 2027.
Variable-rate mortgage holders face higher monthly repayments immediately, with the latest rise adding around $120 per month for an average new owner-occupier loan of $731,000 if lenders pass it on in full. Renters may face further rent increases as some landlords pass on higher borrowing costs, according to advocacy group Everybody's Home. Savers with variable savings accounts at institutions such as Macquarie Bank will see their rates increase from 19 November.
Reporting: The Conversation, ABC News, SmartCompany, 7NEWS, The Nightly
Written by Pick & Scroll News from the reporting and documents linked above.
