Australia’s central bank raised its cash rate target by a quarter percentage point to 4.85% from 4.60% on Tuesday, November 3, as it sharply worsened its inflation outlook despite signs that the economy is slowing. The Reserve Bank of Australia’s Monetary Policy Board voted six to three for the increase.
The new 4.85% target is the highest since 2008. The RBA’s historical table shows a peak of 4.75% from late 2010 through October 2011 and no higher target between 2009 and this decision. It last stood above 4.85% in November 2008, at 5.25%, before falling to 4.25% in December.
The RBA’s decision was announced at 2:30 p.m. Sydney time, equivalent to 10:30 p.m. Monday in New York. The bank’s rate overview lists November 4 as the effective date for the new target.
Inflation is now forecast to reach the top of the bank’s 2% to 3% target range only in late 2027, around three quarters later than previously expected. The board said price pressures remain broadly based and warned that higher inflation expectations could become embedded.
The bank pointed to higher fuel and commodity costs linked to the Middle East conflict, alongside domestic capacity pressures that are tighter than previously thought. It also said AI-related investment is driving rapid increases in prices for technology-related goods, while businesses report rising costs and plans to pass them on.
The decision adds pressure to an economy already feeling earlier rate increases. The RBA said economic growth is slowing, housing prices have fallen significantly and unemployment has risen. It expects output growth to slow further over the coming year as higher borrowing costs and weaker housing activity weigh on household consumption and dwelling investment.
The outlook is not uniformly weak. Business investment is expected to be stronger in the near term, including investment in data centres. Employment is forecast to keep growing, though unemployment is projected to rise more than the bank expected in August.
ABC News reported that this was the RBA’s fifth increase this year and that the new rate is the highest in 18 years. The three dissenting board members preferred to hold the target at 4.60%.
The board did not commit to a further increase at its next meeting. It said future decisions would depend on incoming data, the evolving outlook and risks to inflation and activity. The bank warned that unresolved Middle East supply disruptions could leave inflation higher and growth lower than forecast.
The cash rate is the overnight interbank rate targeted by the RBA, not a uniform mortgage rate charged to households. The bank says it influences lending and deposit rates across the economy. Its next scheduled cash-rate update is December 8 at 2:30 p.m. Sydney time.
JBizNews Desk | Sydney, Australia
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