RBA Raises Cash Rate to 4.85% in 6-3 Split, Cites Broader and Longer Inflation Pressures

The Reserve Bank of Australia raised its benchmark cash rate by 25 basis points to 4.85% on Tuesday, pressing ahead with tighter policy even as the economy slows, housing prices fall and unemployment rises. The decision was not unanimous: The central bank said six members of its nine-member Monetary Policy Board voted to lift the rate, while three voted to keep it at 4.60%.

The move lifted the cash rate from the 4.60% level set at the bank’s Sept. 29 meeting. In a statement, the board said, “At its meeting today, the Board decided to increase the cash rate target by 25 basis points to 4.85 per cent.” It said inflation “remains elevated” and recent data show it is “broadly based,” while updated staff forecasts were revised materially higher. Inflation is now expected to stay elevated through much of 2027 and not return to the top of the bank’s 2% to 3% target range until late 2027, about three quarters later than previously forecast.

The split vote underscored the difficult balance facing Australia’s central bank, which is charged with returning inflation to target while contributing to full employment. Even as it tightened policy again, the board acknowledged weaker parts of the economy, saying growth is slowing, housing prices have fallen significantly and the unemployment rate has risen.

Before the meeting, official data had pointed to easing but still too-high inflation alongside a softer labor market. Australia’s headline consumer price index rose 4.3% in the year through September 2026, while the trimmed mean measure of underlying inflation, which strips out some volatile price moves, was 3.6%. The seasonally adjusted unemployment rate rose to 4.7% in September.

The RBA said higher fuel and commodity prices linked to the conflict in the Middle East were among the reasons for the higher inflation outlook. It also cited AI-related investment, including data-center-related activity and higher prices for technology-related goods, as adding to price pressures. “AI-related investment is driving rapid growth in prices for technology-related goods, and inflation in many goods and services remains high,” the board said.

Tuesday’s move was the RBA’s fifth rate increase of 2026, extending a renewed tightening cycle after increases in February, March, May and September. The bank’s inflation target is 2% to 3% on average. Higher cash rates generally raise funding costs across the financial system and often lead lenders to increase variable mortgage rates, although banks decide how much of the change to pass on and when.

The board said it judged that “a further tightening in financial conditions is warranted” to bring inflation back to target. It added that it remains focused on its mandate and will do what it considers necessary to return inflation sustainably to the 2% to 3% range.