RBA lifts cash rate to 4.85% as inflation outlook worsens
The board voted six to three for a 25-basis-point rise, with inflation now forecast to reach the target range only in late 2027.
The Reserve Bank of Australia has raised its cash rate target to 4.85 per cent, an increase of 25 basis points, after revising its inflation forecasts higher. Six board members backed the increase, while three supported holding the rate at 4.60 per cent.
The bank now forecasts inflation will not reach the upper end of its 2–3 per cent target band until late 2027. That is around three quarters later than its previous forecast. The board said the risk of higher inflation expectations becoming embedded had increased.
The RBA attributed the changed outlook partly to fuel and other commodity price increases linked to the Middle East conflict, alongside domestic capacity pressures that were tighter than previously assessed. It also said AI-related investment was pushing up technology goods prices, while businesses were raising prices or considering increases to cover costs.
The bank said earlier rate rises had tightened financial conditions as economic growth slowed, housing prices fell significantly and unemployment increased. It expects further slowing in output growth over the coming year, with higher rates and weaker housing activity weighing on household consumption and dwelling investment.
Business investment is forecast to strengthen in the near term, including spending related to data centres. Employment is also expected to grow, although the bank projects a larger rise in unemployment than it forecast in August. The board said further tightening was warranted given the inflation outlook and continuing upside risks.
