The Reserve Bank of Australia on Tuesday raised interest rates by 0.25 percentage points to 4.85%, its fifth increase this year, warning that inflation remained materially higher. Underlying inflation hit 3.6% and overall inflation was 4.3%, well above the 2‑3% target, with fuel, commodities and AI‑related investments driving prices. Governor Michele Bullock said the move reflects a worsening outlook and will affect all Australians, not just mortgage holders. The Australian dollar slipped to under US$0.70, and the decision, a 6‑3 vote, adds pressure on Prime Minister Anthony Albanese as house prices slump and unemployment rose to 4.7%. Economists warn of recession risk; Paul Bloxham sees a 50‑50 chance, while Shane Oliver estimates mortgage costs will rise by A$6,600 (US$4,610) annually. The RBA now diverges from other major central banks that held rates steady, defending its aggressive stance as needed to curb excess demand.
The rate hike arrives shortly before the Melbourne Cup, one of Australia’s biggest annual sporting events, underscoring mounting concerns about the health of the economy.
Bullock countered that the disparity between the RBA’s inflation targets and monthly readings is broadly similar across different markets, noting, “I wouldn’t say we’re completely Robinson Crusoe here.”
The latest move will also heap pressure on the Albanese government, which has signalled plans to cut public spending next month, while pointing to external factors such as the war in the Middle East as key drivers of inflation.
Economists highlight the cumulative rate rises will increase annual mortgage interest payments for many homeowners by A$6,600 (US$4,610) a year, pushing some mortgage holders “close to a tipping point.”
Source: Financial Times Markets · Summarized by HeadlinesBriefing