Australian central bank raises rates but leaves next move uncertain

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Australia hikes rates

Highlights

Australia raised its cash rate to 4.85%, the highest since 2008.
Inflation reached 4.3%, delaying the expected return to target.
Governor Michele Bullock signaled a pause before further tightening.

The Reserve Bank of Australia (RBA) increased its benchmark cash rate by 25 basis points to 4.85%, its highest level since November 2008. The move, reported by CNBC, was widely expected and marked the fifth increase this year, with six board members supporting the decision and three voting to leave rates unchanged.

Inflation remains above the central bank target

Australia's annual inflation rate accelerated to 4.3% in September from 4% in August, reaching its highest level since March. Rising fuel and commodity prices, partly driven by the war involving Iran, have added to domestic price pressures.

The RBA now expects inflation to remain elevated through much of 2027 and return to its 2% to 3% target range only toward the end of that year. Its latest forecasts suggest that bringing inflation under control will take longer than previously anticipated.

Investment in artificial intelligence is also contributing to higher prices for technology-related goods. Meanwhile, weak productivity growth has limited the economy's ability to expand without generating additional inflation.

Economic growth is already slowing. Australia's gross domestic product increased 2.1% from a year earlier in the June quarter, compared with 2.5% in the March quarter.

Michele Bullock signals a wait-and-see approach

Despite raising rates again, Bullock indicated that the RBA was not committed to further tightening. At a Sydney news conference, she emphasized that the effects of recent increases had not yet fully reached households and businesses.

The central bank also removed language from its policy statement explicitly expressing readiness to raise rates further. Bullock maintained that another increase remained possible but stressed that policymakers wanted to preserve flexibility.

Financial markets interpreted her remarks as a softer stance. The Australian dollar weakened, while traders reduced their expectations for another rate increase next year.

The divided board vote also highlighted growing concern about the economic consequences of keeping borrowing costs elevated.

Higher borrowing costs test the economy

The RBA faces a difficult balance between containing inflation and avoiding a deeper economic slowdown. Higher mortgage payments are restricting household spending, while Australia's housing market is showing increasing weakness.

Home values across major cities fell 1.4% in October, adding to concerns about the impact of restrictive monetary policy.

For borrowers, the 4.85% cash rate means financial pressure could persist well into 2027. Whether the RBA raises rates again will depend largely on inflation, employment conditions, and how quickly previous increases slow consumer demand.

We also reported Australia to tighten rules for crypto exchanges from 2027.

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