RBA lifts cash rate to 4.85%, highest level since 2008

The Reserve Bank of Australia (RBA) increased its cash rate target by 0.25 percentage points to 4.85%, the highest level since November 2008. The move, announced at the board’s second-last meeting of the year, represents the fifth rate hike in nine months.

Governor Michele Bullock said the decision was driven by domestic inflation pressures rather than external factors such as oil prices. She warned that while the bank does not expect a recession, the higher rates are intended to curb inflation that remains above the 2-3% target range.

"People will feel like it’s a recession," Bullock told journalists, adding that the economy is slowing and that the bank is "very uncomfortable" with the current situation.

The board’s statement noted that inflation is expected to stay above 3% for the coming year and that higher expectations could become entrenched. It also highlighted that housing prices have fallen, unemployment has risen, and output growth is projected to slow further.

Six of the nine monetary policy board members voted for the hike, while three preferred to hold rates steady, marking the first split vote in several months. Economists and the four major banks had largely anticipated the increase, citing concerns over persistent price pressures and domestic capacity constraints.

The higher cash rate is expected to raise mortgage repayments for many households and could intensify pressure on the property market, which has seen a six-month downturn in home prices. The RBA indicated that further tightening may be needed before the year’s final meeting.