The Reserve Bank of Australia’s Monetary Policy Board raised the cash rate target by 25 basis points to 4.85%, citing a materially higher inflation outlook and growing risks that elevated inflation expectations become embedded. Six members supported the increase, while three preferred to hold the rate at 4.60%. Inflation is now forecast to reach the top of the 2–3% target range only in late 2027, around three quarters later than previously expected. The revised outlook reflects higher fuel and other commodity prices affected by the Middle East conflict, alongside domestic capacity pressures that are tighter than previously estimated. Higher fuel costs are feeding through to other goods and services, while investment related to artificial intelligence is driving rapid price increases for technology goods. Business liaison indicates that many firms are raising prices or considering increases in response to cost pressures. Some measures of inflation expectations have also risen. The decision adds to monetary tightening already slowing the economy. Housing prices have fallen significantly and unemployment has risen. Output growth is forecast to slow further over the coming year, easing capacity pressures, while unemployment is projected to rise more than anticipated in August. Higher interest rates and weaker housing prices and turnover are expected to restrain household consumption and dwelling investment, although stronger business investment, including in data centres, should provide some support.
RBA raises cash rate target by 25 basis points to 4.85% as inflation outlook worsens
The Reserve Bank of Australia increased its cash rate target by 25 basis points to 4.85% in a 6–3 vote. Inflation is forecast to return to the top of the 2–3% target range only in late 2027, reflecting higher energy costs and tighter domestic capacity pressures. The increase comes despite slowing growth, significant housing price falls and a weaker unemployment outlook.