Australia's Reserve Bank raises interest rates to 4.85%, highest since 2008

The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.85%, marking the fifth interest rate hike this year and the highest level since 2008, according to reports from areanews.com.au and illawarramercury.com.au.

The decision was made in a split 6-3 vote by the central bank board and was widely anticipated by economists and bond markets, which had priced in more than an 80% chance of a hike.

RBA governor Michele Bullock noted that inflation pressures had worsened due to overseas factors such as the Iran war and the artificial intelligence boom, as well as higher domestic capacity pressures than previously expected.

While the bank does not anticipate a recession, Bullock acknowledged that higher interest rates would make many Australians feel poorer. The RBA also revised its unemployment forecast upward to 5% by 2028 and lowered real wage growth projections for 2026 by 1%.

Economists pointed to high government spending and low productivity growth as contributing factors to inflation and economic constraints. KPMG chief economist Brendan Rynne mentioned that the RBA might pause rate hikes in December but could resume them in the new year if conditions do not improve.

The rate increase adds pressure on Treasurer Jim Chalmers to find spending cuts in the upcoming budget update, as borrowers face higher repayment costs.