Macro
RBA Raises Cash Rate to 4.85% in Split 6-3 Vote and Gives No Explicit Path for Further Hikes
Australia's central bank delivered its fifth increase of 2026, lifting inflation forecasts on fuel costs while three board members preferred to hold.
By Noris Ortiz ·
The Reserve Bank of Australia raised its cash rate target by 25 basis points to 4.85% on Tuesday, a 6-3 decision that marks its fifth increase this year and leaves the policy rate at its highest level since late 2008 [1][2]. Three board members preferred to hold at 4.60%, according to the bank's statement [1].
The Monetary Policy Board said underlying inflation is broadly based and that recent data have confirmed it [1]. It revised its inflation outlook materially higher, partly because of higher fuel and commodity prices linked to the conflict in the Middle East, and judged domestic capacity pressures to be a little tighter than it previously thought [1]. It also pointed to AI-related investment pushing up prices for technology goods, and warned that higher inflation expectations could become entrenched, noting some measures have recently risen [1]. Inflation is now forecast to stay "elevated through much of 2027" and not return to the top of the 2% to 3% target range until late 2027 [1].
The bank was equally clear that the economy is cooling. It said tighter financial conditions have slowed activity, housing prices have fallen significantly and unemployment has risen, and it expects growth to slow further and unemployment to rise by more than it previously projected, even as employment keeps growing [1]. Household consumption and dwelling investment are expected to weaken, while near-term business investment, including data centers, is forecast to be stronger [1].
On the future path, the statement gave no explicit direction. The board said it will do what it considers necessary to return inflation sustainably to target, guided by incoming data and its assessment of risks [1]. ABC News reported that the board dropped its earlier explicit signal that further increases might be needed, a change UBS described as a clearly dovish shift [2]. At her press conference, Governor Michele Bullock said, "Inflation is too high, and our forecasts suggest it will stay higher for longer," but also that she does not know what the next move will be and that the central forecast does not include a recession [2]. According to ABC, the three dissenters put more weight on downside risks such as a housing downturn and rising unemployment [2].
Markets read the decision as less hawkish than the headline rate move suggested. The Australian dollar fell about 0.3% to around 69.76 U.S. cents after the statement, and the ASX 200 closed 0.3% higher, ABC reported [2]. The Associated Press also noted that Australian stocks rose 0.3% on the day [3]. Economists were divided on what comes next: UBS expects the bank to hold from here, Capital Economics thinks tightening is finished with cuts probably coming late next year, and Betashares expects at least one more increase, with February 2027 as its base case [2].
For households, the effect is immediate. Macquarie Bank became the first lender to pass on the full increase, lifting variable home loan rates by 0.25 percentage points from November 19, ABC reported [2]. ABC's analysis of the bank's forecasts also pointed to headline inflation of 4.5% by the end of 2026 and to real wages falling this financial year, with wage growth of 3.4% against price growth of 3.7% [2].
The decision matters beyond Australia because it shows a central bank facing the same mix as several of its peers: energy-driven inflation on one side and a softening labor market on the other. Traders will watch upcoming Australian inflation and employment data for evidence on which pressure is winning, and will compare the RBA's softened language with the tone of other central banks as they update their own guidance.
Sources:
[1] Reserve Bank of Australia, "Statement by the Monetary Policy Board: Monetary Policy Decision", November 3, 2026. https://www.rba.gov.au/media-releases/2026/mr-26-30.html
[2] ABC News (Australia), "RBA hikes cash rate to 18-year high of 4.85 per cent — as it happened", November 3, 2026. https://www.abc.net.au/news/2026-11-03/rba-interest-rates-markets-live-coverage/107338216
[3] The Associated Press via CP24, "Apple drops with most of Wall Street, but gains for other Big Tech stocks cushion the blow", November 3, 2026. https://www.cp24.com/news/money/2026/11/03/us-stocks-drift-in-mixed-early-trading-on-wall-street-as-apple-falls/
This article was produced with AI assistance. It is for informational purposes only and is not financial advice. StockVolt and its authors may hold positions in securities mentioned.