Reserve Bank of Australia raises cash rate to 4.85% in fifth hike of 2025

The Reserve Bank of Australia (RBA) lifted its cash rate to 4.85% on Tuesday, marking the fifth increase this year and the highest level since the Global Financial Crisis. The decision was approved by a majority of the nine-member monetary policy board, with six voting for the hike and three preferring to keep the rate unchanged.

Recent data from the Australian Bureau of Statistics showed headline inflation of 4.3% in the year to September, the strongest rise since March, while underlying inflation held at 3.6% for a sixth consecutive month. The board said the inflation outlook had been revised "materially higher" and is now expected to stay elevated through much of 2027, reaching the top of the 2-3% target range only by late 2027.

"Inflation is now forecast to remain elevated through much of 2027 and is not expected to reach the top of the 2–3 per cent target range until late 2027, around three quarters later than previously forecast," the RBA statement read.

The board also noted that the economy is slowing, housing prices have fallen, and unemployment has risen, with higher rates expected to dampen dwelling investment and household consumption.

"The economy is slowing, housing prices have fallen significantly and the unemployment rate has risen," the statement said.

Economist Angus Moore, executive manager of economics at realestate.com.au, said the RBA remains unconvinced that inflation will return to target without further tightening and warned that additional rate rises would extend the current housing market downturn.

"The economy has slowed, and the labour market has eased a bit in recent months, but RBA is yet to be convinced that inflation will return sustainably to target without further tightening," Moore said.

Mortgage Choice chief executive Anthony Walrdon advised borrowers to review their loan terms, noting that variable-rate mortgages could see repayments rise by up to $154 per month in the most expensive regions from mid-December.

"My advice to mortgage holders is that you should speak to your mortgage broker to see if your home loan is still competitive," Walrdon said.

Realestate.com.au data indicated that median home values have fallen 4.3% since March, with Sydney’s median-priced home now $50,267 cheaper than earlier in the year. Moore added that despite the downturn, labour market conditions remain historically resilient, mortgage arrears are low, and many households retain repayment buffers.

The RBA’s next cash-rate decision is scheduled for 8 December, with markets still uncertain about whether another hike will be required later in the year.