Cash rate rises to 4.85 percent as inflation outlook worsens
The Reserve Bank of Australia (RBA) raised its cash rate target by 25 basis points to 4.85 percent. It forecasts inflation reaching the top of its 2–3 percent target range only in late 2027, around three quarters later than previously forecast.
Six votes for tighter policy
Six Board members voted for the increase; three preferred to hold the cash rate at 4.60 percent.
The RBA revised inflation forecasts materially higher, citing broad price pressures and tighter domestic capacity than previously estimated.
Middle East conflict has raised fuel and commodity prices, with fuel costs passing into other goods and services.
AI-related investment is raising technology goods prices, while firms report passing on costs or planning increases.
Inflation is forecast to stay above 3 percent over the coming year and elevated through much of 2027.
Some inflation expectations measures have risen, increasing the risk of entrenched expectations.
The Board judged further tightening warranted given the revised outlook and continuing upside risks.
Housing weakens as investment expands
Rate increases since the start of 2026 have tightened financial conditions.
Growth is slowing, housing prices have fallen and unemployment has risen.
The RBA forecasts slower output growth and weaker housing investment and consumption, but stronger near-term business investment, including data centres.
Employment will grow, but unemployment will rise more than forecast in August.
AI investment has supported trading-partner growth despite the conflict.
Weak productivity constrains Australia's potential growth; housing downturn effects remain uncertain.
Inflation outweighs the slowdown
The majority prioritized inflation risks despite weaker housing and rising unemployment.
Unresolved conflict and oil supply disruptions leave risks of higher inflation and lower activity.
The Board committed to data-led decisions and returning inflation sustainably to target while pursuing full employment.