Macro
RBA lifts cash rate to 4.85% in 6-3 vote, drops explicit tightening bias
The Reserve Bank of Australia raised rates for the fifth time this year, taking the cash rate to its highest since late 2008, while three board members voted to hold.
HedgeWeekly News Desk ·
The Reserve Bank of Australia raised its cash rate target by 25 basis points to 4.85% from 4.60% on Tuesday. It was the fifth increase this year and took the rate to its highest since late 2008. Six board members voted for the rise and three voted to hold.
In its statement the board said inflation is now expected to stay above 3% for the coming year and warned of an increasing risk that higher inflation expectations become embedded. It said underlying inflation is broadly based, capacity pressures look tighter than previously estimated, and higher fuel prices are feeding into other goods and services. The board judged that a further tightening of financial conditions was warranted. Coverage of the release noted the statement no longer carried an explicit tightening bias.
Governor Michele Bullock said inflation is too high and the bank's forecasts show it staying higher for longer. She said the bank is not tightening because of oil prices directly, pointing instead to domestic capacity pressures and data centre-related investment, and added that the economy is slowing but the RBA does not forecast a recession. The bank now sees headline inflation at 4.5% by the end of the year, up from 3.6% in its previous forecast. Before the decision, markets had priced an 89.2% chance of a hike. The Australian dollar fell 0.3% to 69.76 US cents and the ASX 200 closed up 0.3%.
For funds and allocators, the open question is what comes next. Bullock said she does not know the next move, and economists reported alongside the decision disagree: UBS expects a hold, Capital Economics thinks tightening is done with cuts likely by the end of next year, Betashares sees at least one more hike with February 2027 as its base case, and CBA expects a hold until cuts in August and November 2027. A three-member dissent and the dropped tightening bias make upcoming inflation data the key input for Australian rate and currency positioning.