Australia's RBA decides to lift its cash rate target to 4.85%
· BehindLines newsroom · Updated
On November 3, the RBA decided to lift its cash rate target from 4.60% to 4.85%, effective November 4. The vote was six to three. The following sections revisit forecasts made before that decision.
Why the banks expect a hike
The forecasts date from late October, after the third-quarter inflation figures were published on October 28. According to the Commonwealth Bank (CBA), underlying inflation (trimmed mean) rose 1.0% over the quarter and 3.7% over a year, figures close to its forecasts but still judged too high. The CBA, which had until then expected a hold, changed its mind and speaks of an "insurance hike" meant to guard against several risks. According to the financial outlet investingLive, ANZ and Westpac also forecast a hike in November. According to the CBA, markets gave it about a 90% chance.
RBA Governor Michele Bullock said that some risks identified in August had materialised and that inflation would probably be higher than the central scenario at that time. The factors cited are higher energy prices linked to renewed conflict in the Middle East, the boom in artificial intelligence investment, and strains on domestic production capacity. ANZ points out, according to investingLive, that market services inflation recorded its strongest annual rise since 2024.
A slowing economy
The context is not without cost. The CBA notes slowing household spending, falling property prices, a decline in new home loans and rising unemployment. Ms Bullock reminded listeners that the full effect of the earlier hikes has not yet passed through the economy, because of transmission lags. The previous increase was decided unanimously on September 29 and took the target to 4.60%. That decision must be distinguished from the split vote on November 3.
And then?
Views differ on what comes next. The CBA expects pauses in December and February, then possible cuts in 2027, with great uncertainty over timing. Westpac considers a February hike increasingly likely, without making it its main scenario. These scenarios depend in particular on developments in the Middle East: an escalation would push energy higher, while an agreement between the United States and Iran could instead ease prices, according to investingLive.
Who it matters to
If lenders pass the increase on to their variable rates, borrowing costs on the affected loans will rise. The cash rate alone does not set each loan's rate or its repricing date. The RBA presents this tightening as a way to return inflation to target in a slowing economy.