RBA lifts cash rate to 4.85% in a split vote, with three members pushing to hold

The Reserve Bank of Australia raised its official cash rate by 25 basis points to 4.85% on Tuesday, a move markets had priced in but which came with a detail that unsettled the consensus: three of the nine board members voted to hold.

RBA governor Michele Bullock said at the post-meeting press conference that the dissenters weighed the downside risks to growth, housing and the labour market more heavily than the upside risks to inflation. They also argued for waiting for more information, given the hikes already delivered and the lagged effect of monetary policy. Commonwealth Bank head of Australian economics Belinda Allen called the split a surprise, given the board had treated inflation as its top priority at the previous meeting.

The post-meeting statement also dropped a line used in recent months - that the board would keep raising rates "if needed" - and replaced it with a simpler commitment to do what is necessary to bring inflation sustainably back to target. Allen judged the meaning unchanged, saying policy is now better placed to watch the flow of data after five hikes, though the willingness to tighten again remains. She expects the RBA to stay "on edge" for the rest of the year but to hold, and pencilled in two cuts in late 2027, in August and November, taking the cash rate to 4.35%.

Betashares chief economist David Bassanese was less convinced that 4.85% will be enough. He flagged the Iran war and the AI boom as likely upside inflation risks for the foreseeable future, and said the best hope of a near-term slowdown rests on weaker local growth - which higher rates are slowly bringing about. He did not rule out two further hikes in the first half of next year and said his base case is a rise in February 2027. At the least, he said, having hiked in both September and November, the RBA will likely feel able to hold at its final meeting of the year next month, offering households a Christmas reprieve.