The Reserve Bank of Australia has raised its official cash rate by 25 basis points to 4.85 per cent, marking an 18-year high and the central bank’s fifth rate increase of 2026. Governor Michele Bullock said that some pain now will prevent even worse pain down the track
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Seven of the 11 sectors finished in the green, led by gains in rate-sensitive retail and property stocks, while energy proved to be the day’s biggest drag on the sharemarket, where the benchmark S&P/ASX 200 Index gained 30.3 points, or 0.3 per cent, to close at 8886.8 after a late afternoon rally. The benchmark rate now sits at its highest level since late 2008, matching borrowing costs seen during the global financial crisis. The central bank’s Monetary Policy Board divided on the decision at its meeting in a split six-to-three vote, with six members supporting the quarter-point increase and three members voting to leave the target unchanged at 4.60 per cent, according to the official policy statement.
Updated Forecasts Push Inflation Timeline Back
Inflation is now expected to remain elevated through much of 2027 and will not return to the bank’s 2 to 3 per cent target range until late 2027, according to updated staff forecasts published by the Reserve Bank. That timeline is approximately three quarters later than previous projections indicated.
The central bank attributed the upward revision to a combination of international and domestic factors. Higher fuel and commodity prices stemming from conflict in the Middle East have fed directly into goods and services, while domestic capacity pressures have proved tighter than earlier estimates suggested. Rapid growth in technology-related goods driven by artificial intelligence investment has kept price pressures broad-based.
Governor Michele Bullock defended the central bank’s trajectory during a press conference after lifting official interest rates to 4.85%. RBA deputy governor Andrew Hauser previously described persistent inflation as the central banker’s nightmare.
The governor noted that the board cannot allow consumer inflation expectations to drift higher as cost-of-living pressures persist across the economy.
Politicians and Markets React to The Rate Hike
Treasurer Jim Chalmers pointed to global commodity pressures as the primary catalyst for the inflation surge, while the rate increases will heap more pain on over 3.3m households with home loans and intensify political friction over economic management.
Our budgets are not what’s putting upward pressure on inflation. But we can play a helpful role and that’s what we intend to do
Jim Chalmers, the treasurer
Angus Taylor offered a sharply contrasting assessment, arguing that voters deserved to hear the truth regarding government spending.
Labor’s spending spree is driving up inflation, it’s driving up interest rates, and Australians are paying the price
Angus Taylor
Etoro lead analyst Josh Gilbert said that the omission of a key line regarding further rate increases in the central bank’s statement convinced the market that borrowing costs have peaked after five hikes in 2026. This dovish market signal sent the Australian dollar down to as low as US69.71¢, while the three-year bond yield fell to 4.77 per cent.
Rate Rise Increases Monthly Home Loan Payments
Canstar calculations indicate that the latest rate rise will add $107 to the monthly interest payment on a $700,000 home loan, bringing the total increase in repayments across the five 2026 hikes to $532 for mortgage holders.
Macquarie Bank announced it would lift variable home loan rates by 0.25 per cent alongside equivalent increases for transaction and savings accounts, with the changes set to take effect on November 19.
With household budgets already feeling the strain, today’s decision by the RBA will be challenging for many Australians,
Macquarie head of personal banking Ben Perham said, noting that the institution is again waiting more than two weeks before implementing the higher rates to give variable borrowers time to prepare. Perham added that specialist teams remain available to assist customers facing financial hardship or worried about meeting mortgage repayments.
Earlier coverage: ASX 200 Dips as Hotter-Than-Expected CPI Weighs on Sentiment