Reserve Bank of Australia increases cash rate by 25 basis points to 4.85%, citing persistent inflationary pressure from higher fuel and commodity prices linked to the Middle East conflict.
Australia’s central bank has raised its benchmark interest rate for the fifth time in 2026, taking borrowing costs to an 18-year high as higher fuel and commodity prices linked to the Middle East conflict continue to fuel inflation.
The Reserve Bank of Australia (RBA) announced on Tuesday that its Monetary Policy Board had increased the cash rate target by 0.25 percentage point to 4.85 per cent following a two-day policy meeting.
The latest increase follows four previous rate hikes of 0.25 percentage point each in February, March, May and September, bringing the benchmark rate to its highest level since 2008.
The decision was widely anticipated by Australia’s four major banks after official inflation figures released on October 28 showed annual inflation accelerating from 4.0 per cent in August to 4.3 per cent in September.
Underlying inflation also increased, with the annual trimmed mean rising from 3.5 per cent to 3.6 per cent. The RBA’s inflation target remains between 2 and 3 per cent.
Middle East conflict fuels inflation concerns
The central bank warned that inflation could remain elevated throughout much of 2027 and is not expected to return to the upper end of its target range until late next year.
The RBA attributed the mounting inflationary pressure partly to disruptions in global oil supplies caused by the unresolved Middle East conflict.
It cautioned that prolonged uncertainty could push inflation higher while weakening economic activity in Australia and overseas.
Australian Treasurer Jim Chalmers said the conflict was placing sustained upward pressure on inflation and weighing on economic growth.
He acknowledged that the interest rate increase was widely expected but said it would be difficult news for households already facing significant cost-of-living pressures.
RBA divided over interest rate decision
The latest rate increase was approved by a 6-3 majority of the Monetary Policy Board. Three members voted to maintain the cash rate at 4.60 per cent.
RBA Governor Michele Bullock said members supporting an unchanged rate placed greater emphasis on downside risks, including the housing downturn, rising unemployment and stagnant wage growth.
However, she defended the increase as necessary to bring inflation under control, acknowledging its impact on Australians with mortgages.
The Monetary Policy Board is scheduled to hold its final meeting of 2026 in early December to consider the next interest rate decision.
Meanwhile, UBS Australia chief economist George Tharenou expects the central bank to leave interest rates unchanged at its December meeting.