RBA raises the cash rate by 25 basis points to 4.85% and pushes back its inflation forecast
Serguey Asael Shinder1 min readThe Reserve Bank of Australia's Monetary Policy Board decided on 3 November to raise the cash rate target by 25 basis points to 4.85%. The statement says inflation remains elevated and broadly based, and that the updated staff forecasts revise the inflation outlook materially higher.
The Board names several reasons. Higher fuel and other commodity prices tied to the conflict in the Middle East are part of it, but domestic capacity pressures are also judged a little tighter than thought. AI-related investment is driving rapid price growth for technology-related goods, and liaison shows many firms facing cost pressures and raising prices or planning to. Inflation is now forecast to stay above 3% over the coming year and not to reach the top of the 2 to 3% target range until late 2027, about three quarters later than previously forecast. The Board says some measures of inflation expectations have risen lately and that the risk of higher expectations becoming embedded is increasing.
The statement also records the cost of this year's increases: financial conditions have tightened, the economy is slowing, housing prices have fallen significantly and unemployment has risen. Staff expect output growth to slow further, dwelling investment and household consumption to weaken, and the unemployment rate to rise by more than in the August forecasts, while business investment, including in data centres, grows faster in the near term.
What it means
The RBA is tightening into a slowing economy because it judges the bigger risk to be inflation expectations, not growth. The statement's own forecasts carry the trade-off openly: inflation back in range only by late 2027, with higher unemployment on the way there.