Australia raises rates for the fifth time this year. Why it bites faster there

What happened

The Reserve Bank of Australia raised its cash rate by a quarter point to 4.85% on Tuesday 3 November, its fifth rise of 2026 and the highest level since late 2008. The decision was not unanimous: six members of the Monetary Policy Board voted for the rise and three to hold at 4.60%.

The board said inflation was elevated and broadly based, and it revised its forecasts materially higher, citing fuel and commodity prices linked to the Middle East conflict and somewhat tighter capacity. It expects inflation to stay above 3% over the coming year and not to reach the top of its 2–3% target range "until late 2027". Prices rose 4.3% in the year to September, and the trimmed mean, its preferred underlying measure, was 3.7% in the third quarter. "The Board will continue to do what it considers necessary to bring inflation sustainably back to target," it said.

Why rate rises bite faster in Australia

A central bank's rate works by changing what people pay to borrow. How quickly that happens depends on the type of loans people hold. In Australia, most home loans have variable rates that move with the cash rate. When the RBA raised rates in September, the big banks passed the increase on in full from 9 October, and their lowest variable mortgage rates rose above 6%.

In the United States, by contrast, most homeowners have 30-year fixed-rate mortgages, so a Fed rise barely touches existing borrowers; it reaches mainly new buyers. The same quarter-point rise therefore cuts spending power faster in Australia, which is one reason its central bank can move in small, frequent steps.

Why it raises rates while jobs weaken

Unemployment rose to 4.7% in September. A slowing job market would normally argue for caution. But with inflation above target for a long stretch, central banks worry that people start to expect high inflation and act on it, which is harder to reverse later. The split vote shows how close that call was. "We can't allow expectations to shift away from the target," Deputy Governor Andrew Hauser said, as quoted by ABC News.

Where it sits in the chain

This is Link 2, the central bank's reaction to inflation (Link 1), with the mortgage market as the main route to the real economy.

What to watch

• The RBA's full Statement on Monetary Policy and its new forecasts.
• Whether banks pass the rise on in full, and how quickly.
• Australia's October inflation figure later this month.