Australia Raises Rates to 4.85%, Highest Since 2008

The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.85% on Tuesday, the bank's policy statement shows. That is the highest level since November 2008, CNBC reported.

The vote was not close to unanimous. Six board members backed the hike and three wanted to hold at 4.60%, the statement says. CNBC counted it as the fifth increase this year.

How the cash rate works

The cash rate is what banks charge each other for overnight loans. When the RBA lifts it, mortgage and business loan rates in Australia tend to follow. That squeezes spending, which is the point: less demand is meant to cool prices.

Why the board moved now

Prices are still running hot. Consumer prices rose 4.3% in the year to September, up from 4% in August, CNBC reported. The bank now expects inflation to stay above 3% for the coming year and does not see it reaching the top of its 2% to 3% target range until late 2027, about three quarters later than it forecast before.

The statement names three drivers. Fuel and commodity prices are higher because of the Middle East conflict. Firms report cost pressure and plan to pass it on. AI-related investment is pushing up prices for technology goods.

In our opinion: A 6-3 split says the board is no longer sure how much more Australia can take. The stake is wider than one country, because the RBA blamed oil and AI spending, two forces hitting every central bank at once. The next signal to watch is Australia's monthly inflation print, which will show whether the board has to move again.

The cost lands on households. The statement says housing prices have fallen significantly and unemployment has risen, and it expects growth to slow further. Asked about a recession, Governor Michelle Bullock said it is "not our base case at the moment," CNBC reported.