RBA Increases Cash Rate Target to 4.85 Per Cent

The Reserve Bank of Australia's Monetary Policy Board has decided to increase the cash rate target by 25 basis points to 4.85 per cent. The decision was reached by majority, with six board members voting to raise the rate and three members voting to leave it unchanged at 4.60 per cent.

What the RBA said

The Board noted that inflation remains elevated and broadly based across the economy. Updated forecasts show inflation is expected to remain high through much of 2027 and is not projected to return to the top of the 2 to 3 per cent target range until late 2027, about three quarters later than previously forecast.

Several factors are driving price pressures. Higher fuel and energy costs stemming from the Middle East conflict are adding to inflation, while domestic capacity pressures have been tighter than earlier estimated. Technology prices are also rising rapidly due to demand from AI-related investment, and many firms report passing on higher input costs to customers.

At the same time, earlier interest rate increases have tightened financial conditions. Output growth is slowing, housing prices have fallen significantly, and the unemployment rate has risen. While business investment in areas like data centres remains strong, higher interest rates and lower housing market turnover are expected to weigh on dwelling investment and household spending.

What this means for mortgage holders

A decision by the RBA to adjust the cash rate target influences the broader cost of funding across the Australian financial system.

Commercial lenders set their own variable interest rates independently and adjust them at their own discretion. Following an increase in the official cash rate, lenders often choose to pass some or all of the increase on to variable rate home loans.

For existing fixed-rate home loans, interest rates remain locked for the duration of the agreed fixed period, meaning official cash rate changes do not alter current fixed terms.

What to watch next

The Board highlighted several ongoing uncertainties that could affect economic growth and price stability in Australia:

• The duration of the Middle East conflict and its impact on global oil supply and domestic energy prices.
• The depth of the downturn in the domestic housing market and continuing weak productivity growth.
• Trends in global economic growth and continuous investment in business technology.

The RBA stated it will continue to monitor incoming economic data and evolving risks to guide future monetary policy decisions.

Homeowners can check directly with their lender or review their home loan statement to see how interest rate adjustments apply to their individual loan.