RBA rate hike: Australia raises rates to 4.85%, the highest since 2008

The Reserve Bank of Australia raised its cash rate by a quarter point to 4.85% on Tuesday, its fifth rate hike of 2026, and said inflation will stay too high for longer than it thought. Six of the nine members of its Monetary Policy Board voted for the rise and three for no change, the bank’s statement says. The new rate, which takes effect on 4 November, is the highest since December 2008.

The vote shows a board that is less sure than before. The September rise took the rate to 4.60%; this time a third of the board wanted to stop there.

Why did the RBA raise interest rates?

The short answer is that the bank’s inflation forecast went up a lot. “Inflation remains elevated and recent data indicate that it is broadly based,” the board said, and the staff forecasts were “revised materially higher”. It gave three reasons:

• Fuel and commodities. Higher prices for fuel and other commodities, pushed up by the conflict in the Middle East, are spreading into the prices of other goods and services.
• A tighter economy. Spare capacity in the economy is “a little tighter than earlier thought”, and many firms in the bank’s business liaison say they are raising prices or plan to.
• AI investment. Spending on AI is “driving rapid growth in prices for technology-related goods”, the board said: an unusual line in a central bank’s rate statement.

The board also worries about expectations. Inflation is now forecast to stay above 3% for the coming year, and it said there is “an increasing risk that higher inflation expectations will become embedded”, as some measures of them have risen.

What the RBA now forecasts for inflation

The forecasts in the November Statement on Monetary Policy, finalised on 28 October, are the reason for the rise. Consumer prices rose 3.9% in the year to June 2026. The bank now expects:

• CPI inflation of 4.5% in the year to December 2026, then 3.7% by June 2027 and 2.7% by December 2027.
• Trimmed mean inflation, the bank’s preferred underlying measure, of 3.6% in the year to December, 3.5% in June 2027 and 2.9% in December 2027.
• Inflation back to the top of its 2–3% target band only in late 2027, about three quarters later than it forecast in August.

The forecasts assume, as the RBA does each quarter, that the cash rate follows market prices. Those put the rate at about 4.9% in mid-2027, a little above today’s 4.85%, before it eases to 4.8%. The bank also assumes Brent crude at $109.50 a barrel on average in the December quarter of 2026, falling to $86.90 a year later.

The highest rate since 2008

Australia started 2026 with a cash rate of 3.60%. It has risen by 1.25 percentage points since, in rises of a quarter point in February, March, May, September and November, the RBA’s record of decisions shows. The last time the rate was higher was in November 2008, when the bank cut it from 6.00% to 5.25% in the global financial crisis, before a further cut to 4.25% the next month.

RBA cash rate target after each change, %. Source: Reserve Bank of Australia, cash rate target; each bar is the rate from the date the change took effect.

Nov 2008	5.25
Dec 2008	4.25
Start of 2026	3.60
Feb 2026	3.85
Mar 2026	4.10
May 2026	4.35
Sep 2026	4.60
Nov 2026	4.85

Source: Reserve Bank of Australia, cash rate target; each bar is the rate from the date the change took effect.The Macro Notebook

The rises come as other central banks also turn. The Bank of Japan held at 1.25% last week but with one vote for a rise, as we reported on 30 October, alongside faster ETF sales. The Bank of England decides on Thursday, and markets see a first rise there since 2023 as all but certain, as we wrote on Monday in our preview of the Bank of England’s decision.

The cost: a slowing economy and falling house prices

The board admits the cost. “The economy is slowing, housing prices have fallen significantly and the unemployment rate has risen,” its statement says. Its forecasts show:

• Unemployment rising from 4.4% in June 2026 to 4.7% by December, and to 5.1% by the end of 2028.
• Growth in GDP slowing from 2.1% in the year to June 2026 to 1.6% by December and 1.3% by December 2027.
• Dwelling investment shrinking by 2.8% in the year to December 2027, after growth of 5.8% in the year to June 2026.

Higher rates also weigh on borrowers. The board expects falls in housing prices and turnover to weigh on household spending. Business investment is the exception: the bank expects it to grow 12.0% in the year to December 2026, including investment in data centres. Protests over one such data centre were part of the AI market story we covered in our item on whether the AI bubble is bursting.

Will the RBA raise rates again?

The statement does not promise another rise. The board “will be attentive to the data and the evolving assessment of the outlook and risks” and says monetary policy “is well placed to respond”. The three votes for a pause, and market prices that show only a little more tightening, point to a bank near the end of its run, unless inflation surprises again.

The next data that matter come quickly. The Monetary Policy Board meets next on 7–8 December, its schedule shows. Before then Australia publishes new figures on wages, jobs, inflation and GDP.