RBA raises cash rate to 4.85%, citing inflation concerns
The Reserve Bank of Australia increased its cash rate to 4.85%, warning that higher rates are needed to curb inflation despite the impact on household budgets.
The Reserve Bank of Australia (RBA) lifted its cash rate to 4.85% on Melbourne Cup day, marking the fifth increase this year. RBA Governor Michele Bullock said the move is intended to slow the economy and bring inflation back to target, adding that monetary policy takes time to affect the broader economy.
"Raising interest rates today is necessary to slow the economy and return inflation to target. Some pain now will prevent even worse pain down the track," Bullock said.
A Canstar survey found that 10% of mortgage borrowers said they could not meet the higher repayments, while another 28% said doing so would be difficult. The rate hike is expected to push the average variable mortgage rate for owner-occupiers to about 6.74%, ending the period of rates below 6%.
Major lenders are expected to pass the increase on to borrowers by early November, which could add roughly $114 to monthly repayments for a typical $731,000 loan. Over the course of the five hikes this year, borrowers may see an additional $584 per month, or about $7,000 annually, compared with the start of the year.
Bullock also addressed recent concerns about card-surcharge bans, stating that anecdotal price increases reported by some businesses are not directly linked to the ban and reflect broader supply-demand imbalances.
Treasurer Jim Chalmers acknowledged the difficulty households will face, noting that the decision was widely anticipated but will stretch budgets further. He emphasized that the government is delivering cost-of-living relief through tax and health measures while managing the budget responsibly.
University of Sydney economist Luke Hartigan warned that the cumulative rate hikes could increase the risk of a recession, higher unemployment and falling house prices by early 2027, and called for complementary fiscal actions to reduce demand pressures.
The RBA indicated that the full impact of the rate rise may take up to a year to materialise, and it will continue monitoring inflation trends, including global oil price influences, while maintaining that monetary policy cannot directly control those external factors.