Australia Raises Rates to 4.85% as RBA Signals Possible Pause

The Reserve Bank of Australia raised its cash rate to 4.85%, the highest in 18 years. Governor Michele Bullock signalled a possible pause even as the bank raised its inflation forecasts.

By Krzysztof Kamiński. The Polish original was published on 3 November 2026.

The Reserve Bank of Australia (RBA) lifted the cash rate by 25 basis points from 4.60%, its fifth increase this year. The board voted 6–3 in favour, citing persistently high inflation and a weaker outlook for bringing it back to target.

Inflation forecast moves higher

Rising energy and commodity prices, driven in part by the conflict in the Middle East, are keeping inflation elevated. Capacity constraints, weak productivity growth and strong demand, including for artificial intelligence technologies, are adding to the pressure. Businesses are increasingly passing higher costs on to customers, raising the risk that inflation will persist and inflation expectations will rise.

The RBA now expects inflation to remain above 3% over the next year and return to its 2–3% target range in late 2027, about three quarters later than previously forecast. It expects underlying inflation to return to target about six months later than it projected in August.

Higher rates weigh on spending and housing

Earlier rate increases are increasingly slowing economic activity, weakening consumer spending and the housing market. Home prices in Australia’s largest cities fell 1.4% in October, while rising unemployment points to a gradual weakening in the labour market.

The RBA expects growth to slow further, housing investment to weaken and unemployment to rise more than previously forecast. It expects business investment to grow faster in the near term, particularly in data centres and AI technologies.

Markets pare bets on another increase

Despite the weaker economic outlook, the RBA judged that the risk of persistently high inflation warranted further tightening. Bullock indicated that the bank could pause to assess how earlier increases are affecting the economy, while leaving open the possibility of another rise. Markets interpreted her remarks as a sign of a softer stance, contributing to a fall in the Australian dollar. Market pricing put the probability of a further increase to 5.1% in 2027 at about 30%.

Economists now expect interest rates to stay high for longer. Commonwealth Bank of Australia forecasts a further slowdown, rising unemployment and a gradual move in inflation towards target by late 2027. Cotality says rate cuts may be needed for a sustained housing recovery and appear unlikely before the second half of 2027.

Further increases remain possible, particularly if inflationary pressures intensify again. The RBA will base its next decisions on incoming data on inflation, economic activity and the labour market.