RBA Raises Cash Rate to 4.85%, Highest Since 2008, in a 6-3 Vote

The Reserve Bank of Australia raised its cash rate target from 4.6% to 4.85% on Tuesday, Nov. 3, Australian time. It is the fifth increase this year and puts the rate at its highest level since November 2008.

The nine-member Monetary Policy Board did not move as one. Six members voted to hike. Three voted to hold.

Inflation is moving the wrong way

Consumer prices rose 4.3% in the year to September, up from 4% in August and the highest reading since March. Trimmed mean inflation, the measure the RBA watches most closely, was 3.6%, according to Canstar's analysis of the latest Australian Bureau of Statistics data.

That measure grew nearly 1% between June and September. Canstar notes a quarterly pace under 0.75% is consistent with 3% annual inflation. The four earlier hikes have not yet pulled it down to that pace.

The RBA's own statement says inflation "remains elevated and recent data indicate that it is broadly based." The bank's staff now expect inflation to stay elevated through much of 2027. It is not forecast to reach the top of the 2-3% target range until late 2027, about three quarters later than previously forecast.

The board blamed higher fuel and commodity prices tied to the Middle East conflict. It also said domestic capacity pressures are "a little tighter than earlier thought." And it pointed to AI-related investment, which it says is driving rapid price growth in technology goods.

The cost to borrowers

Canstar calculates that the latest hike adds $107 a month to repayments on a $700,000 mortgage with 25 years remaining. Across all five hikes, that borrower pays more than $500 extra a month compared with January, over $6,000 a year. The Guardian, citing the same Canstar figures, puts the cumulative rise at $532 a month.

More than 3.3 million households have home loans. Macquarie Bank has already said it will raise variable home loan rates by 0.25 percentage points from Nov. 19. It will lift rates on transaction and savings accounts by the same amount.

The damage is already visible in the RBA's own description of the economy. "The economy is slowing, housing prices have fallen significantly and the unemployment rate has risen," the board said. Australia's GDP grew 2.1% in the year to June, down from 2.5% in the March quarter. The bank expects the jobless rate to rise by more than it forecast in August.

Governor Michele Bullock said recession is "not our base case at the moment."

Who is blamed

Treasurer Jim Chalmers called the decision "difficult news" for Australians. He is under pressure over government spending after the hot inflation print.

The RBA's forecasts complicate that argument. The bank said public demand was weaker than expected in the first half of 2026, as cost-of-living measures rolled off and spending on defence, disability and aged care moderated. The political fight over whether government spending is feeding inflation continues regardless.

David Koch, economic director at Compare the Market, rejects the approach altogether. "Five interest rate increases and it has failed to bring down inflation," he told Sunrise. "Monetary policy has failed and Australian households are quite rightly going: 'hey, we're doing it tough.'"

Koch put the extra cost to the average homeowner at $6,450 a year compared with a year ago. He said that is after tax, so a household would need to earn an extra $9,000 to $10,000 to cover it. He urged Australians to call out businesses raising prices faster than inflation.

The RBA's reasoning runs the other way. The board says it is worried that higher inflation expectations will become embedded, and that "some measures are assessed to have risen lately." It argues that tighter financial conditions will slow growth, ease capacity pressures and bring inflation back to target.

Savers and the pass-through

Savers are supposed to gain from higher rates, but the evidence is mixed. Canstar says the average maximum ongoing savings rate rose only 20 basis points after the September hike, less than the 25-point cash rate move. The average base rate on bonus savings accounts rose just 0.01 percentage points, from 0.20% to 0.21%. Banks are facing increased scrutiny over how hikes are applied to deposits.

What comes next

The RBA's statement says the board "will be attentive to the data and the evolving assessment of the outlook and risks." The Guardian noted the statement dropped any explicit mention of further hikes. In September, Bullock said more increases would come "if that's what's needed to get inflation down."

The board also warned that the Middle East conflict remains unresolved. It said there are scenarios in which inflation runs higher and activity lower than forecast. With a 6-3 split, the next trimmed mean reading will show whether the three dissenters were right to want a pause.