RBA Hikes to 4.85%: The Inflation Rate Fight Intensifies

Price pressures in Australia have reached a breaking point, forcing the central bank into decisive action. On November 3, the Reserve Bank of Australia moved the cash rate to 4.85 percent, marking its fifth increase this year. This decision pushes borrowing costs to their highest level since the 2008 global financial crisis. It is a direct response to persistent price pressures that refuse to subside.

Market reaction was immediate but nuanced. Traders had priced in an 88 percent chance of a hike, so the decision itself was not a shock. However, the composition of the vote sent a stronger signal than the number itself. Six members voted for the increase, while three dissented in favor of a hold. This split decision suggests the board is deeply divided on the path forward. The market rallied in the afternoon, interpreting the tone as a signal that the peak may be near.

The Numbers Behind the Decision

The data driving this decision is unambiguous. Annual headline inflation rose from 4.0 percent in August to 4.3 percent in the latest figures released last week. This figure sits well outside the central bank’s target band of 2 to 3 percent. Even the trimmed mean inflation, which is the RBA’s preferred measure for underlying price trends, remains elevated at 3.6 percent. These are not minor deviations. They represent a sustained period of high price growth that erodes purchasing power.

The central bank has now substantially revised its inflation forecasts upward. Inflation is expected to remain above 3 percent for the coming year. The RBA warned in its decision statement that there is an increasing risk that higher inflation expectations will become embedded in the economy. This is a critical distinction. When businesses and consumers start to expect higher prices, they adjust wages and pricing behavior accordingly. That can create a self-fulfilling cycle that is much harder to break.

A Split Board and a Dovish Hint

Governor Michele Bullock acknowledged the complexity of the situation. She stated that the last couple of rate hikes have not even started to flow through yet. This suggests the full impact of previous increases has not yet hit the real economy. She also noted the need to balance curbing inflation with avoiding a recession. The board’s guidance has shifted subtly. The RBA quietly dropped its previous language about hiking further if needed. This omission appears to have convinced traders that borrowing costs have peaked.

Josh Gilbert, lead analyst at etoro, highlighted this shift in guidance. He noted that the question now is how long rates will stay at this level. The board pushed back the return of inflation to the target band by around three quarters. This now places that milestone in late 2027, nine months later than previously expected. This delay is significant. It means households will face high borrowing costs for a longer period than anticipated.

The Cost to Households

For the average Australian, this is a tangible financial blow. Canstar calculates that this latest hike lifts monthly repayments on a $600,000 loan with 25 years remaining by another $92. When you add this to the four hikes already delivered this year, repayments are $456 a month higher than in January. That is nearly half a thousand dollars in extra monthly costs for a single household.

The Conversation provides a slightly different baseline, using the average size of a new owner-occupier home loan. They estimate the latest increase adds about $120 a month to a $731,000 mortgage. In total, the five rate increases from this year will add about $600 a month to average repayments. This assumes lenders pass on the increase in full. For many families, this is money that was previously allocated to other essentials, now redirected to debt service.

Economic Outlook and Unemployment

The RBA is not just fighting inflation. It is also managing the labor market. The central bank now expects Australia’s unemployment rate to rise more than it previously forecast. It is projected to reach 5.1 percent at the end of 2028. The rate is already at a five-year high of 4.7 percent. This is a delicate balancing act. The bank is trying to cool the economy enough to bring prices down, but not so much that it triggers a deep recession.

Bullock acknowledged that the current economic conditions are making people feel like they are in a recession. She noted that people feel poorer because their spending cannot grow quickly when incomes are not growing fast. This perception is a major challenge for policymakers. Even if technical definitions of a recession are not met, the lived experience of households is one of financial strain and reduced confidence.

Is This the Last Hike?

Besa Deda, chief economist at William Buck, believes this is the peak. She told News24 that while she would not fully rule out another hike due to variable factors like Middle East conflict and energy prices, the core view is that this is the last increase. She predicts the next move will be a rate cut, though rates may stay high for some time. This perspective aligns with the market’s interpretation of the RBA’s softened guidance.

The key takeaway is that the fight against inflation is far from over. The RBA has pushed rates to an 18-year high, but the inflation rate remains stubbornly above target. The next few months will be crucial. If the flow-through effects of these hikes finally materialize, we may see a turn. Until then, households must brace for continued high costs and a prolonged period of elevated interest rates.