RBA lifts cash rate to 4.85%, highest in nearly 18 years

The Reserve Bank of Australia (RBA) has increased the cash rate from 4.60% to 4.85%.

This is the second consecutive increase and brings the rate to the highest level in nearly 18 years.

It means repayments on variable loans will be higher, and borrowing capacity will be lower.

In its statement today, the RBA said inflation remained elevated due to the Middle East conflict, strong AI-related demand and the increasing cost of many goods and services.

The RBA is Australia’s central bank.

It meets eight times a year to assess the economy and set the cash rate.

The cash rate (often just called “interest rates”) is what banks charge each other for short-term loans.

A higher cash rate increases interest rates across the economy, including on home loans, car loans and business loans.

This makes it more expensive to borrow money, which means higher repayments on variable-rate mortgages.

Background

For those who have savings accounts, the increased cash rate may also mean you earn more interest.

However, banks often pass on interest rate rises to savers more slowly than to borrowers, and sometimes may not pass on the full increase.

The RBA increases the cash rate to make it more expensive to borrow and encourage people to leave their money in savings accounts.

This reduces the amount of spending in an economy, which reduces inflation.

The RBA said it raised the cash rate to 4.85% because “inflation remains elevated” and is expected to stay higher than its target range through “much of 2027”.

Inflation measures changes in the prices of goods and services.

The RBA’s target range is 2-3%.

The RBA Board was split on the decision, with six members voting in favour of the increase and three voting against.

The Board said it would increase the cash rate further if necessary.

Today’s decision

The decision comes after data from the property research company Cotality showed home values falling for the seventh straight month.

Higher interest rates tend to push house prices down, as people cannot borrow as much.

Home prices are expected to keep falling over the coming months and into next year.