Australia raises its cash rate to 4.85% in a divided vote

Australia’s central bank announced a 25-basis-point increase in its cash rate target to 4.85% on November 3, with six board members backing the move and three preferring to leave it at 4.60%. The decision raises borrowing-cost pressure even as the bank describes a slowing economy.

Reuters reported that the increase takes the rate to its highest level in 18 years and is the fifth rise of 2026. The direction was widely expected: 30 of 32 economists in its survey had forecast a rise. The divided vote, however, shows the decision was not unanimous.

The board’s explanation centres on inflation lasting longer than it previously expected. It cited higher fuel and other commodity prices, domestic capacity pressures and cost increases spreading across goods and services. It now forecasts inflation reaching the 3% upper edge of its target range in late 2027, roughly three quarters later than before. That is a projection, not an assured date.

The latest monthly inflation release, published by the Australian Bureau of Statistics on October 28, shows the pressure preceding the decision. Headline prices rose faster over the year to September than over the year to August; the annual trimmed-mean measure also edged up.

The ABS also records annual price increases of 5.2% for housing and 8.7% for transport in September. Services prices were 4.1% higher over the year, compared with 4.6% for goods, showing that the measured increases extended across both sides of the consumption basket.

The cash rate affects the economy through other interest rates. In the RBA’s explanation of the mechanism, higher rates can raise the cost of household and business borrowing and increase the reward for saving. Debt repayments can leave less money for other purchases, while more expensive finance can delay business expansion. When spending slows relative to what the economy can supply, price growth can ease.

That process takes time: the bank describes millions of spending decisions combining to slow demand over time. Its policy statement already notes falling housing prices and higher unemployment, while expecting stronger near-term business investment, including data centres. A further squeeze on spending therefore operates alongside uneven demand across the economy.

The board has not committed to a December pause. Its statement says future decisions will follow incoming data and the changing assessment of risks. The split vote records disagreement over today’s increase; it does not specify what the next decision will be.