RBA raises cash rate to 4.85% amid global oil price impact and domestic capacity pressures

The Reserve Bank of Australia increased the cash rate to 4.85%, a level not seen since 2008, marking its sixth hike of the year. Governor Michele Bullock told a press conference that higher global oil prices have contributed to inflation staying elevated, but the monetary tightening is aimed at domestic capacity pressures that existed before the oil price rise.

Bullock emphasized the central bank’s independence, stating that fiscal policy decisions remain the responsibility of elected officials. She noted that both federal and state governments are providing goods, services, and infrastructure, which also affect economic conditions.

Treasury Minister Jim Chalmers responded by reiterating that the government’s budget does not drive inflation upward and highlighted ongoing savings measures in upcoming budget updates. Opposition leader Angus Taylor criticized the government’s spending levels, while independent MP Allegra Spender acknowledged rapid growth in public spending.

Economists, including Westpac chief economist Luci Ellis, interpret the board’s split vote as a signal that rates may be held steady in the coming months, with the next decision expected by February. The RBA now projects inflation to remain above its 2-3% target band until late next year and forecasts a modest rise in unemployment to around 5.1% by the end of next year. Growth forecasts for 2027 and 2028 have been trimmed, indicating slower economic expansion.

Bullock warned that while the economy is not currently cracking, rising prices could give households the perception of a recession. She described high inflation as a disease and interest rates as the necessary medicine to treat it.