Australia Raises Cash Rate to 4.85% in Fifth Hike of 2026 as Inflation Stays High
The Reserve Bank of Australia lifted its cash rate by 0.25 percentage points to 4.85% on Tuesday, its fifth increase of 2026, after inflation forecasts moved higher. Three of the nine board members voted to hold.
Australia’s central bank raised its cash rate to 4.85% on Tuesday, lifting borrowing costs to their highest level in 18 years. The Reserve Bank of Australia’s board raised the rate by 0.25 percentage points, its fifth increase of 2026.
The vote was 6 to 3, with three of the nine board members preferring to hold the rate at 4.60%. Thirty of 32 economists polled by Reuters had expected an increase.
Why the board moved again
The board said inflation risks had risen. “Given the revised inflation outlook and the continuing upside risks, the Board judged that a further tightening in financial conditions is warranted to support the return of inflation to target,” the board said in a statement. It added: “The Board will continue to do what it considers necessary to bring inflation sustainably back to target.”
Underlying inflation reached 3.7% in the third quarter, a two-year high, according to Reuters, and has spent more than five years above the bank’s 2% to 3% target band. The bank’s updated forecasts do not see inflation returning to the top of that band until late 2027, about three quarters later than it had forecast before, according to the Motley Fool’s account of the statement.
The labor market has softened, with unemployment at 4.7%, a five-year high, but the bank still judges it to be a little tight, Reuters reported. Housing prices have fallen and the economy is slowing, and the bank said higher fuel and commodity prices, partly tied to the Middle East conflict, had pushed its inflation outlook higher.
What markets took from the decision
The Australian dollar slipped 0.3% to $0.6979 after the decision, Reuters reported, and markets are betting the bank will hold in December. The statement dropped a reference to raising the cash rate further if needed, a change Reuters noted.
Katherine Palmer, head of fixed income strategy at BlackRock Australia, said the bank is likely to hold from here as it assesses incoming data, while keeping the option to tighten again if inflation pressures fail to ease. Marcel Theliant, head of Asia-Pacific at Capital Economics, said the bank is likely “now done tightening though it probably won’t loosen policy until the end of next year,” Reuters reported.
The 2026 tightening totals 1.25 percentage points, more than reversing 0.75 percentage points of easing in 2025, Reuters reported. The board meets again in December.
Reporting based on coverage by Reuters and the Motley Fool.
