RBA raises cash rate to 4.85%, cites inflation risks

The Reserve Bank of Australia increased its official cash rate to 4.85%, an 18-year high, as part of a fifth consecutive rise aimed at slowing inflation. Governor Michele Bullock told reporters that the move was “necessary” and that “some pain now will prevent even worse pain down the track.”

The board split on the decision, with six members supporting the hike and three preferring to keep the rate unchanged. Financial markets now see a roughly 30% chance of another increase by May, while the probability of a rise before Christmas has fallen to about 12%.

Treasurer Jim Chalmers attributed recent inflationary pressure primarily to higher fuel prices linked to the Middle East conflict, noting that the federal budget was not a major driver. Opposition leader Angus Taylor argued that the government’s spending was contributing to higher inflation and interest rates.

Economists noted that the RBA’s post-meeting statement omitted any explicit reference to further tightening, which some interpreted as a dovish signal. EY chief economist Cherelle Murphy said the bank is likely to adopt a “wait-and-see” approach over the summer, though she did not rule out additional hikes.

The bank’s latest monetary policy forecast projects inflation remaining above 4% through late 2026, only falling below the 3% threshold by the end of the following year. Economic growth is expected to stay below potential, with GDP growth projected at 1.6% this year and 1.3% in 2027, while unemployment is forecast to rise modestly to around 5% by 2028.