At 4.85%, rates hit an 18-year high as Australia hikes again to fight inflation

Rates reach a new high

The Reserve Bank of Australia raised the cash rate to 4.85%, up from 4.6%. It is the highest rate since the global financial crisis in late 2008. This is the fifth increase this year, taking the total rise since February to 1.25 percentage points. The board was divided: six members backed an increase and three preferred to leave the rate unchanged.

Inflation remains above target

Annual headline inflation climbed from 4% in August to 4.3% in September. Underlying inflation, measured by the trimmed mean, rose from 3.5% to 3.6%. Both measures remain above the RBA’s target range of 2–3%. The bank now expects inflation to stay elevated through much of 2027, returning to the top of its target range only in late 2027—nine months later than previously forecast. It also sees a growing risk that higher inflation expectations become embedded.

Borrowers face higher repayments

Assuming lenders pass on the full increase, monthly repayments on a $731,000 mortgage—the average size of a new owner-occupier loan—will rise by about A$120. Across this year’s five increases, average monthly repayments will have risen by about $600.

Jobs and next decisions

The RBA expects unemployment to rise to 5.1% at the end of 2028, higher than it previously forecast. The rate is already 4.7%, a five-year high. Asked whether the bank would raise rates again, Governor Michele Bullock said, “I don’t know what the next move will be”. She said the latest increases had not yet flowed through and the bank would review incoming data against its forecasts.

Bullock said the RBA was trying to curb inflation without tipping the country into recession if it could avoid it. She also acknowledged that slow growth in incomes and spending could leave people feeling poorer.