RBA lifts cash rate to 4.85%, an 18-year high, but a 6-3 split hints the peak is near
Australia's cash rate now sits at 4.85%, its highest in 18 years, after the Reserve Bank of Australia's board voted 6-3 to raise it 25 basis points at its November meeting. The split was narrower than expected, and the board struck out its earlier reference to raising rates further if needed, a change markets read as a signal the tightening cycle is close to its end.
The Australian dollar fell 0.3% to $0.6977 as traders priced a pause at next month's meeting, with only a 25% chance of one more hike by early next year. Governor Michele Bullock said the next move was unclear and that the three dissenters weighted downside risks more heavily as the housing market weakened and unemployment rose, though she cautioned that "there is still a bit of a skew on the upside to inflation risks, and we need to be alert to those materializing."
The RBA's updated forecasts put headline inflation at 4.5% in the fourth quarter before it returns to the 2% to 3% target band in the second half of next year, with unemployment seen climbing above 5% over the next two years. Underlying inflation accelerated to a two-year high of 3.7% in the third quarter, and has now spent more than five years above the top of the target band.
This year's 125 basis points of tightening has more than reversed the 75 basis points of easing in 2025, placing Australia at the hawkish end of developed-market central banks. The Federal Reserve held steady this month, while the Reserve Bank of New Zealand paused on a razor-thin vote. Deloitte Access Economics partner Stephen Smith said the increase "adds to the risk that growth will weaken by more than expected through next year, even as inflation stays elevated", while National Australia Bank chief economist Sally Auld said the board is likely now comfortable that policy is restrictive.
The pain is sharpest in housing, where the market is headed for its biggest downturn in four decades, a slump expected to weigh on household spending and on the estate agents, conveyancers and removal firms tied to housing turnover. Unemployment has reached a five-year high of 4.7%, yet the central bank still judges the labour market a little tight. ANZ's head of Australian economics, Adam Boyton, said the bank sees the cash rate at or near its peak and is not forecasting another increase.
