Australia just raised rates to 4.85% — its highest since 2008 — but the vote was split

Australia's central bank has raised interest rates to their highest level in 18 years — and immediately signalled it may be nearly done. The Reserve Bank of Australia lifted its cash rate by 25 basis points to 4.85% on Tuesday, November 3, its fifth increase of 2026, taking borrowing costs to a level not seen since 2008.

The decision was not unanimous. Six board members voted for the hike and three preferred to hold at 4.60%, a split that surprised markets even though the hike itself was widely expected: 30 of 32 economists polled by Reuters had forecast it, and markets had priced about an 88% chance of a move after hot third-quarter inflation data. The board also dropped a reference to raising rates further if needed, keeping only its pledge to "continue to do what it considers necessary to bring inflation sustainably back to target." Markets read the split vote as dovish, and the currency fell despite the higher rate. The Australian dollar slipped about 0.3% to $0.6979, below 70 U.S. cents, and bets strengthened that the bank will hold at its next meeting, on December 8.

The five hikes of 2026 add up to 125 basis points of tightening, more than reversing the 75 basis points of easing delivered in 2025, and put Australia at the hawkish end of developed-market central banks — the U.S. Federal Reserve stayed on hold this month, while New Zealand's central bank stunned markets by pausing in a razor-thin vote.

The reason for the hike is stubborn inflation. September-quarter data showed annual trimmed-mean inflation — the Reserve Bank's preferred underlying measure — at 3.7%, up 1.0% in the quarter and above the bank's own forecast, while headline inflation is now expected to peak at 4.5% in the December quarter, up from a previous projection of 3.6%. The bank's new forecasts do not see inflation returning to the top of its 2–3% target range until late 2027, about nine months later than previously projected. The bank cited a material upward revision to its inflation outlook, partly reflecting higher fuel and commodity prices linked to the Middle East conflict.

For households, the hike bites directly. On a typical $600,000 variable home loan, repayments are set to rise by about $99 a month once lenders pass the increase on in full; on a $750,000 loan, the rise is about $120 a month. The backdrop is a difficult trade-off the split vote laid bare: unemployment has climbed to a five-year high and households are cutting spending, yet inflation is still running well above target. As one Deloitte Access Economics partner put it, the 6–3 vote reflected policymakers wrestling with exactly that tension.

Why it matters beyond Australia: the Reserve Bank is the latest central bank to show that the inflation fight is not over, even as growth softens — a dilemma facing the Bank of England, which decides on Thursday, November 5, and the U.S. Federal Reserve, which faces its December decision after Friday's jobs report.

What to watch: the Reserve Bank's November meeting minutes on November 17; Australia's October monthly inflation report on November 25; the December 8 decision; and whether lenders pass the full hike on to mortgage holders.