High energy costs and persistent services inflation prompted Australia’s central bank to raise rates again. Falling house prices have yet to ease its concern that inflation will take longer to return to target.
The Reserve Bank of Australia raised its cash rate by 25 basis points, from 4.60% to 4.85%, on November 3, 2026. The board’s statement said six members voted for the increase and three preferred to leave the rate unchanged. The new target takes effect on November 4.
The RBA has now raised rates five times in 2026, following moves in February, March, May and September. KriptoMeta calculates a total increase of 125 basis points, or 1.25 percentage points, from 3.60% at the start of the year, using the official rate history. The 4.85% cash rate will be the highest since 2008, exceeding the 4.75% peak reached in 2010–2011.
Inflation will take longer to return to target
The board said price pressures remained broad. Conflict in the Middle East has raised fuel and other commodity costs. At home, demand is stretching businesses’ production capacity more than the bank had expected. Businesses are passing some of their higher costs on to customers. Investment in artificial intelligence is adding to demand and pushing up prices for technology goods.
In its November economic outlook, the RBA reported consumer price inflation of 3.9% over the year to the September quarter. It now expects annual inflation of 4.5% at the end of 2026, compared with its August forecast of 3.6%. Services prices are also rising rapidly, so the bank sees inflation pressures extending beyond fuel.
The RBA now expects inflation to return to the upper end of its 2–3% target range only in late 2027, about three quarters later than previously forecast. Reaching the 2.5% midpoint is expected to take until mid-2028. The board is also concerned that households and businesses could come to expect high inflation to persist. Preventing that expectation from taking hold helped motivate the increase.
| Measure | End-2026 | End-2027 | End-2028 |
|---|---|---|---|
| Annual consumer price inflation | 4.5% (3.6%) | 2.7% (2.6%) | 2.4% (2.4%) |
| Annual GDP growth | 1.6% (1.4%) | 1.3% (1.6%) | 1.5% (1.8%) |
| Unemployment rate | 4.7% (4.5%) | 4.9% (4.7%) | 5.1% (4.8%) |
Inflation and growth in the table measure the change over the year to the December quarter; unemployment is a quarterly average. The growth rate is not an average for the whole year. The RBA finalized the forecasts on October 28, using market interest-rate expectations available that day. The board has not promised to set rates at the levels assumed in those calculations.
House prices fall as unemployment rises
Home prices in September were almost 5% below their March peak. The RBA attributed the fall to higher interest rates and tax changes in the budget. Falling home values and fewer property sales are slowing household spending and residential investment.
The number of people in work is still growing, but the labour force is expanding faster. The RBA said cost-of-living pressures were prompting more people to seek work, while the unemployment rate averaged 4.6% in the September quarter. As growth weakens, it expects unemployment to rise a little above 5% by the end of 2028, roughly a quarter of a percentage point above its August forecast.
Businesses are supporting near-term growth by investing, particularly in data-centre construction. The RBA raised its end-2026 growth forecast to reflect stronger investment. Household spending, exports and public demand are weakening, however. The bank expects the economy to grow more slowly than its productive potential next year, allowing weaker demand to restrain price increases.
The forecasts assume oil prices will fall from their current elevated levels. Prolonged supply disruptions in the Middle East, and businesses passing on more of their rising costs, could push inflation higher. A sharper-than-expected fall in home prices and spending could instead leave both growth and inflation below the bank’s projections.
How will the rate rise affect borrowing?
The cash rate target applies to unsecured overnight lending between banks. As the RBA explains, changes in overnight rates affect banks’ funding costs, which can prompt them to adjust deposit and lending rates. Banks raise funds at different costs and compete for customers. They can therefore change mortgage and deposit rates at different times and by different amounts.
A borrower with a variable-rate loan may pay more interest if the lender raises the rate. A fixed-rate borrower keeps the agreed rate for the period specified in the contract. Savers’ interest income likewise depends on the rate their bank offers. The RBA says changes in spending and investment take time, so the effects on economic activity and inflation arrive with longer lags.
The board will assess new data, growth and inflation prospects, and risks before making its next rate decision. Its next scheduled meeting is on December 7–8. The board has not committed to a particular December rate.
