Australia’s Central Bank Raises Benchmark Cash Rate to 4.85%
- The Reserve Bank of Australia increased its cash rate by 25 basis points to 4.85%, the highest since November 2008.
- Inflation remains a concern, with the consumer price index rising 4.3% in September, the highest level since March.
- RBA Governor Michelle Bullock stated that additional hikes may occur if necessary to address inflation risks.
On Tuesday, Australia’s central bank raised its benchmark cash rate by 25 basis points to 4.85%, marking the highest level since November 2008. This decision aligns with expectations set by economists surveyed by Reuters and represents the RBA’s fifth rate increase this year.
According to the Reserve Bank of Australia (RBA), the decision was a split one, with six members voting in favor of the increase and three opting for no change. This comes as Australia continues to face significant inflationary pressures, evidenced by a 4.3% rise in the consumer price index in September, which is up from 4% in August and reflects the highest level since March.
The RBA’s latest statement indicates that inflation is anticipated to “remain elevated through much of 2027” and is not expected to return to the target range of 2%-3% until late 2027, three quarters later than previously projected. Factors contributing to this outlook include rising fuel and commodity prices, alongside a surge in AI-related investments driving up costs for technology goods.
In her remarks following the September decision, RBA Governor Michelle Bullock indicated that inflation is “too high,” driven partly by increased oil prices linked to the Iran War and stronger domestic spending. She noted, “We’re seeing signs that upside risks to inflation are materializing” and stated that the RBA would implement further hikes if deemed necessary to manage inflation levels.
Growth has decelerated in the first half of 2026, with Australia’s GDP registering a 2.1% increase in the June quarter compared to the previous year, a drop from 2.5% growth in the March quarter. The RBA is focused on bringing inflation under control while higher borrowing costs and rising living expenses pose challenges to households and overall economic activity.
When asked about the possibility of a recession in Australia, Bullock remarked that it is “not our base case at the moment.”
News Courtesy of CNBC
