A split board and a 2008 high

The Reserve Bank of Australia has lifted the cash rate for the fifth time this year, taking it from 4.6% to 4.85% in an effort to regain control of inflation that surged to 4.3% in the year to September. The move followed hawkish remarks from senior central bank figures in recent days and weeks.

The decision did not carry the board with it. Six members voted for a hike while three preferred to hold the rate steady, and the cash rate now sits at its highest level since 2008. In its post-meeting statement, the board said it "will continue to do what it considers necessary to bring inflation sustainably back to target".

Notably, the statement made no explicit reference to the potential need for further hikes, suggesting the RBA is willing to wait and see how the five rises of this year play through the economy.

Mortgage holders face another $107 a month

More than 3.3 million households with home loans now face extra repayment pain from back-to-back hikes, adding to pressure on the federal government over its economic management.

For borrowers, the arithmetic is straightforward. According to Canstar:

• •The rise adds $107 to the monthly interest payment on a $700,000 home loan
• •Across all five hikes this year, that same loan's monthly payment has increased by $532 in total

Oil shock behind stronger inflation

The 4.3% September reading came in substantially stronger than the RBA had anticipated, as the worsening Middle East conflict ended any hope of a quick resolution to the global oil shock.

The central bank's Statement on Monetary Policy expects global oil prices to ease over the coming 18 months, but to remain relatively elevated - offering limited relief to motorists and businesses. On the bank's forecasts, inflation will push higher through the final months of 2026 and only fall back below 3%, within its 2 to 3% target range, by the end of next year - about nine months later than previously hoped.

Slower growth, higher unemployment forecast

The Statement on Monetary Policy sketches a difficult year ahead, with a cost of living crisis expected to extend for another year on the back of below-trend growth and rising unemployment. Public demand was weaker than expected in the first six months of 2026, the SOMP noted, as cost of living measures rolled off and spending moderated in areas such as defence, disability and aged care services.

Growth is forecast to stay weak through to the end of 2028: the economy is predicted to expand by 1.6% this year and by 1.3% in 2027, below an estimated potential rate of about 2%, though better than earlier projections. Despite a housing downturn the RBA described as "one of the steepest over the past 50 years", its economists see no recession in the coming two years.

Unemployment, currently 4.7%, is forecast to end next year at about 4.9% and creep above 5% in 2028, with employment growth remaining positive. The bank also sees no end in sight for the global AI boom, which it expects to add to capacity pressures in Australia, and it nearly tripled its forecast for business investment growth in 2026 to 12%.