The Reserve Bank of Australia has raised the cash rate by 25 basis points to 4.60%, taking borrowing costs to their highest level in almost 15 years as policymakers respond to stubborn inflation and a renewed surge in global energy costs.
The nine-member Monetary Policy Board voted unanimously for the increase, the fourth rate hike of 2026, after leaving rates unchanged at its previous two meetings.
The move takes the cash rate to its highest level since late 2011 and extends a dramatic reversal in monetary policy after the RBA began the year with the rate at 3.60%.
The central bank said inflation remained elevated and that several upside risks identified earlier in the year were now materialising.
Energy and AI add to inflation pressure
The RBA pointed to the widening conflict in the Middle East and substantially higher global energy prices as important new inflation risks.
It also highlighted rapidly rising prices for technology-related goods as global artificial intelligence investment drives demand for computing equipment and infrastructure.
Domestically, capacity pressures remain an issue, with businesses telling the RBA they are facing higher costs and either raising prices or considering doing so.
Short-term inflation expectations also remain elevated, while recent Australian inflation readings have been stronger than the central bank anticipated.
Headline inflation was running at 3.5% annually in July, while underlying inflation remained around 3.6%, both above the RBA’s 2%-3% target range.
The next inflation update is due on Wednesday and will be closely watched for clues about whether another increase could follow before the end of the year.
Economy beginning to feel the pressure
The rate rise comes despite clearer signs that previous increases are beginning to slow parts of the economy.
The RBA said growth in consumer spending was gradually easing, while house prices had fallen across most capital cities and new housing lending had declined noticeably.
Australia’s labour market is also showing signs of cooling, with the unemployment rate rising to 4.6% in August, although employment still increased during the month.
Those softer indicators have not yet been enough to offset the RBA’s concern that inflation could remain above target for too long.
Governor Michele Bullock has repeatedly stressed that allowing inflation expectations to become entrenched would ultimately require even more restrictive monetary policy.
Mortgage borrowers hit again
The latest increase will flow quickly through to households with variable-rate mortgages as lenders adjust home-loan rates.
A 25-basis-point increase adds roughly A$91 a monthto repayments on a A$600,000 mortgage with 25 years remaining.
With four 25-basis-point increases delivered this year, the cumulative impact is now substantially larger for borrowers already dealing with higher food, fuel, insurance and utility costs.
The increase is also reducing purchasing power for prospective homebuyers.
Cotality estimates the cumulative effect of this year’s rate increases has cut the borrowing capacity of a median-income household by almost A$90,000, or about 9%.
Housing values have already begun responding to the tighter conditions, with the national market peaking earlier in the year before moving lower as affordability deteriorated.
More rate rises still possible
The RBA stopped short of signalling that Tuesday’s move marked the end of the tightening cycle.
Instead, it reiterated that future decisions would depend on incoming data, evolving risks and its assessment of the outlook for inflation and the labour market.
That leaves another hike firmly in play if inflation remains stronger than expected.
For households, Tuesday’s decision confirms that Australia has moved decisively back into a higher-rate environment.
For markets, attention now shifts immediately to the next inflation reading and whether it gives the RBA enough confidence to pause at 4.60%, or strengthens the case for borrowing costs to rise even further.
Checked against the RBA’s September decision and latest household-impact reporting.
