On Melbourne Cup day, the Reserve Bank of Australia lifted its cash rate to 4.85 per cent, a fifth tightening this year and the highest level in eighteen years, though the board was divided six to three. It is a moment that asks ordinary households to carry the weight of a war half a world away, a stubbornly broad inflation, and a housing market that is quietly giving ground. The bank now sees price pressures lingering well into 2027, and the cost of that patience will fall first on those who borrowed most in the years when money was cheap.
RBA Lifts Cash Rate to 4.85%, Adding Pressure on Mortgage Holders as Inflation Persists
Mortgage holders, many already stretched, face a fifth rate increase this year, with a $600,000 borrower facing about $92 more per month in repayments.
Almost half a grand in post-tax dollars, every single month
Mark
Six votes to three. How much should we read into that split?
Mimi
It shows the board itself is unsure. Chalmers said much the same, that the outlook carries risks in both directions.
Luke
Worth noting we only know the vote count, not who dissented or why. The reasons for holding aren't in what we have.
Mark
What pushed the majority to hike?
Mimi
Inflation described as broadly based, forecasts revised materially higher, and a return to target pushed out to late 2027, about three quarters later than before.
Mark
And the household side?
Mimi
Canstar puts a $600,000 mortgage at roughly $92 more a month, and $456 more a month across the five hikes this year.
Luke
Those are Canstar's figures for one loan size. A typical borrower's number depends on the loan, and the source calls it fairly typical without showing how.
Mark
The housing numbers seem to compound it.
Mimi
Yes. CBA now sees Perth and Brisbane falling 18 per cent peak to trough, and values nationally are already 6.7 per cent off their March peak.
Luke
Those are forecasts from one lender, not outcomes. The falls to date are measured; the 18 per cent is a projection.
Mark
What happens next?
Mimi
One more meeting, in December. Whether it holds is unknown.
El Pulso
- The board split six to three, and the dissent reveals how uncertain the path back to stable prices really is.
- Oil and fuel prices, driven by a Middle East conflict now in its ninth month, keep feeding inflation that refuses to ease.
- Mortgage holders face another $92 a month on a $600,000 loan, with the year's hikes stacking to $456 in post-tax dollars.
- The Commonwealth Bank expects prices to fall around 14 per cent from peak, with Perth and Brisbane each forecast to drop 18 per cent.
- Auction clearance rates sit below 50 per cent and vendor discounting is the widest since 2019, signalling a market still searching for its floor.
- All eyes now turn to the December meeting, the bank's final decision of the year, to see whether tightening pauses or continues.
On Melbourne Cup day, the Reserve Bank of Australia lifted its cash rate to 4.85 per cent, a fifth tightening this year and the highest level in eighteen years, though the board was divided six to three. It is a moment that asks ordinary households to carry the weight of a war half a world away, a stubbornly broad inflation, and a housing market that is quietly giving ground. The bank now sees price pressures lingering well into 2027, and the cost of that patience will fall first on those who borrowed most in the years when money was cheap.
On Melbourne Cup day the Reserve Bank raised the cash rate by a quarter point to 4.85 per cent, the fifth rise this year and the highest in eighteen years. The decision was widely expected, but it was not unanimous: six board members voted to lift rates while three wanted to hold at 4.60 per cent. Treasurer Jim Chalmers described the outcome as anticipated yet divided, reflecting real uncertainty about where the risks lie.
The board's reasoning rests on inflation that remains elevated and broadly based. Fuel and commodity prices, pushed up by the Middle East conflict, have revised the outlook sharply higher, and a tighter domestic economy has added to the pressure. Inflation is now expected to remain high through much of 2027, roughly three quarters later than previously forecast.
For borrowers the arithmetic is unforgiving. A household with a $600,000 mortgage must find another $92 a month, and across this year's five increases the total reaches $456 monthly. Canstar's Sally Tindall warned that today's borrowers carry far more debt than in earlier periods of comparable rates, so each quarter-point weighs heavier. Some families can absorb it, others will draw down savings, and those with no buffer face the hardest choices.
The housing market is softening alongside. The Commonwealth Bank now expects national prices to fall around 14 per cent from peak to trough, with Perth and Brisbane hardest hit at an expected 18 per cent each. Sales are down 23 per cent on last year, auction clearance rates are below half, and discounting has widened to its largest level since 2019.
The Reserve Bank meets once more this year, in December, and the question now is whether it will pause or keep tightening.
On Melbourne Cup day, the Reserve Bank of Australia raised its cash rate by 25 basis points to 4.85 per cent, the fifth increase this year and the highest level in 18 years. The decision was not unanimous. Six board members voted for the rise, while three wanted to hold the rate at 4.60 per cent.
The move was widely expected. Punters had been almost unanimous in tipping a hike after last week's inflation reading, even though the jobless rate has crept up from 4.1 per cent to 4.7 per cent, a trend that might have made the board wary of tightening further. Treasurer Jim Chalmers called the decision anticipated but not unanimous, and said that reflected considerable uncertainty and risks in both directions.
In its statement, the board said inflation remains elevated and, by recent data, broadly based. Its updated staff forecasts revised the outlook materially higher. Part of that comes from fuel and commodity prices pushed up by the conflict in the Middle East, but the board also judged domestic capacity pressures to be a little tighter than it had thought. It noted that AI-related investment is driving rapid price growth in technology goods. Inflation is now forecast to stay elevated through much of 2027, and not to reach the top of the 2 to 3 per cent target range until late 2027, around three quarters later than previously forecast. Some measures of inflation expectations have risen lately.
The board said the Middle East conflict remains unresolved and that there are scenarios where inflation is higher and activity lower than forecast. Global oil supply disruptions are keeping upward pressure on energy prices. Growth in Australia's major trading partners has so far been stronger than expected, with AI investment outweighing the conflict's drag, but weak productivity growth continues to constrain Australia's potential, and the board flagged uncertainty about how far the housing downturn will go. Chalmers said the war is now in its ninth month and that its re-escalation is adding sustained upward pressure on inflation.
For borrowers, the arithmetic is stark. Canstar's data insights director Sally Tindall said someone with a $600,000 mortgage must find another $92 a month in minimum repayments, and that across the year's five hikes the increase totals $456 a month, in post-tax dollars. She noted that today's borrowers carry significantly more debt than in the last period of comparable rates, which makes each quarter-point rise heavier. Some can absorb it, she said, but others may have to raid savings, and the biggest concern is those with no buffer. Chalmers warned that the full effects of earlier rises have not yet been felt and will slow the economy further when they are. Canstar suggests households work out where the extra money will come from, identify their breaking-point rate, check how long savings would cover essentials, and find spending that can be cut or delayed.
The property market is softening at the same time. The Commonwealth Bank, Australia's biggest mortgage lender, released a note hours before the decision lowering its forecast again. It now expects national prices to fall about 14 per cent from peak to trough, with the five-capital average about 15 per cent below its peak. National values are already 6.7 per cent below their March peak, and the five capitals are 8.2 per cent below.
Perth and Brisbane are expected to be hit hardest, with both cities already past the bank's earlier peak-to-trough forecasts. It now expects 18 per cent falls in each, with about 16 per cent in Sydney and 13 per cent in Melbourne and Adelaide. The bank said conditions have worsened since the May Budget, which brought a shake-up of the investor market and capital gains tax. Sales over the past three months were 23 per cent lower than a year earlier, auction clearance rates across the capitals are below 50 per cent, and vendor discounting has widened to 4.7 per cent, the largest since May 2019.
The RBA has one more meeting this year, in December, and attention now turns to whether it will pause or keep tightening.
Citas Notables
Borrowers are already under extreme financial pressure after four rate hikes this year.— Sally Tindall, Canstar data insights director
Today's decision was widely anticipated but not unanimous.— Treasurer Jim Chalmers
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