Australia's central bank raises cash rate to 4.85%, an 18-year high, in a split 6-3 vote
The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.85% on Tuesday, its fifth increase of 2026, but a narrow 6-3 vote and a softer statement left markets betting the tightening cycle may be near its end. Figures checked on Tuesday afternoon, 3 November 2026 (Pakistan time).
Australia’s central bank raised its benchmark cash rate by 25 basis points to 4.85% on Tuesday, taking borrowing costs to their highest level since 2008 in the fifth increase of 2026. The decision, announced after the Reserve Bank of Australia’s November policy meeting, was widely expected by economists, but the split vote behind it and a change in the bank’s language gave markets a clear signal that policymakers may be close to pausing.
The board voted 6-3 in favour of the increase. Three members wanted to leave the cash rate unchanged at 4.60%, a division that surprised some observers given how firmly inflation has stayed above the bank’s target. The new rate takes effect on Wednesday, 4 November, and it caps a year of aggressive tightening: the bank has now added 125 basis points in 2026, more than reversing the 75 basis points of easing it delivered in 2025.
The trigger for the move was hotter-than-expected inflation. Figures from the Australian Bureau of Statistics released on 28 October showed headline consumer prices rising 4.3% in the 12 months to September, up from 4.0% in the year to August. Underlying inflation, measured by the trimmed mean, accelerated to 3.7%, well above the bank’s 3.4% forecast and outside its 2-3% target band. Before the meeting, 30 of 32 economists polled by Reuters expected a rise, and markets had priced in an 88% chance of one.
In its statement, the board said that, given the revised inflation outlook and continuing upside risks, a further tightening in financial conditions was warranted to support the return of inflation to target. It repeated its standing pledge to do what it considers necessary to bring inflation sustainably back to target. But it dropped a previous reference to increasing the cash rate further if needed — a small edit that traders seized on as a sign the board is no longer pre-committing to another move.
Markets reacted immediately to that softer tone. The Australian dollar slipped about 0.3% to $0.6979 against the US dollar, and three-year government bond futures fell four ticks to 95.13, as investors strengthened bets that the bank will leave rates unchanged at its final meeting of the year on 8 December. Governor Michele Bullock, speaking at a press conference in Sydney after the decision, faced questions about whether the board had reached the peak of its cycle.
The bank’s updated forecasts explain why the decision was so finely balanced. Its November outlook raises inflation forecasts materially and keeps inflation above 3% for the coming year, not returning to the top of the 2-3% target range until late 2027 — around three quarters later than previously forecast. Its separate statement on monetary policy puts a return to the midpoint of the target only in mid-2028. At the same time, the economy is slowing: housing prices have fallen significantly and unemployment rose to 4.7% in September, a five-year high, with the bank now expecting joblessness to climb further than it forecast in August.
That tension — stubborn inflation on one side, a cooling economy and rising unemployment on the other — is what split the board. Stephen Smith, a partner at Deloitte Access Economics, said the 6-3 vote reflected the difficult trade-off facing policymakers as households cut spending and businesses grapple with softer demand. Analysts quoted in the wake of the decision said that, with the full effect of this year’s tightening still working through the economy, the bank is likely to hold from here while it assesses incoming data, while keeping the option to tighten again if price pressures fail to ease.
For borrowers, the increase will bite quickly if lenders pass it on in full. One estimate put the extra cost at about A$99 a month on a typical A$600,000 variable home loan, while other estimates for larger loans were higher. The decision lands on Melbourne Cup day, traditionally the date of the bank’s November meeting, and it puts Australia at the hawkish end of developed-market central banks: the US Federal Reserve stayed on hold this month, while the Reserve Bank of New Zealand stunned markets by pausing in a razor-thin vote.
The wider context matters for the bank’s next steps. Global markets have been unsettled by wars, soaring government debt and trade tensions, and Australian policymakers have watched the United States midterm elections and the US-Iran conflict push oil prices sharply in both directions in recent days. A stronger or weaker Australian dollar, and any further swing in energy prices, will feed directly into the inflation outlook the bank must judge at its December meeting.
What happens next now hinges on the data between now and 8 December. If inflation shows signs of cooling and unemployment keeps rising, the three dissenters’ case for holding will strengthen, and the bank may declare its tightening done. If price pressures stay hot, the board has deliberately kept its options open and could move again, with some analysts flagging a risk the cash rate reaches 5.10% in December or February. The minutes of the November meeting, due on 17 November, may shed more light on how close the board came to holding this time.
Figures checked on Tuesday afternoon, 3 November 2026 (Pakistan time).
This post is market news information only, not financial advice.
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