Reserve Bank of Australia Raises Cash Rate to 4.85%, an 18-Year High, in Split 6-3 Vote

The Reserve Bank of Australia raised its benchmark cash rate by 25 basis points to 4.85% on Tuesday, the highest level since 2008, after materially revising up its inflation forecasts. The board voted 6-3 in favor of the move, with three members preferring to hold rates steady at 4.60%, a split decision that analysts said points to a potential pause at future meetings.

The RBA cited broad-based price pressures as the driver of the decision, with inflation rising across market services, rents, and durable goods. AI-related investment is accelerating technology cost inflation, and higher energy prices are adding further pressure across the economy. The bank now forecasts consumer price inflation at 4.5% in the fourth quarter of 2026, declining to 3.7% by mid-2027 and reaching 2.7% by the end of 2027, before finally approaching the top of its 2-3% target band at 2.4% in the fourth quarter of 2028.

The bank warned that inflation is expected to remain above 3% for at least the next year, raising the risk that higher inflation expectations become entrenched. The board said the revised outlook and persistent upside risks made further tightening necessary, and pledged to continue taking measures needed to bring inflation sustainably back to target.