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Australia ’s central bank has raised its benchmark interest rate from 4.60 per cent to 4.85 per cent – the highest level in 18 years. The hike also marks the fifth increase this year as it struggles to contain inflation . Reserve Bank of Australia (RBA) governor Michele Bullock defended the decision, arguing that taking action now would prevent more serious economic consequences later .
The increase will add to financial pressure on millions of mortgage holders, although the bank’s latest statement suggests it may pause further hikes over the summer to assess their impact. “I want to be absolutely clear here,” Ms Bullock said when she was asked if the RBA was risking pushing Australia’s economy into recession with more rate hikes. “The boards’ dual mandate is still in play here.
We are not looking to tip the economy into recession if we can avoid it. “But we do need to get inflation down, and we do have excess demand at the moment, so that is the key.” She told reporters: “I know this is not the news that many Australians want to hear, but it is what’s needed to get inflation down.” “Inflation is too high, and our forecast suggests it will stay higher for longer. Some pain now will prevent even worse pain down the track,” she said.
Australian Broadcasting Corporation reported that the move exposed divisions within the monetary policy board, with six members supporting the increase and three voting to keep rates unchanged. Markets have also lowered expectations of another hike before Christmas, although the possibility of a further increase by May 2027 remains, the outlet reported. Ms Bullock said the RBA’s new central forecast saw the economic growth slowing “markedly” even as it didn’t see Australia’s economy falling into recession.
“It shows that inflation is quite sluggish, and I think that is going to ... make people feel like it’s a recession because they feel poorer, [and] their spending can’t grow very quickly because their incomes aren’t growing very quickly. “This is a manifestation of lack of productivity growth and the fact that we’ve had this massive supply shock imposed upon us and we’re all poorer,” she said. The RBA expects inflation to climb to around 4.5 per cent towards the end of 2026 before falling below three per cent by late 2027.
Economic growth is also expected to remain subdued, with GDP forecast to expand by 1.6 per cent in 2026 and 1.3 per cent in 2027. Unemployment, currently at 4.7 per cent, is projected to approach five per cent in 2028.
Source: The Independent
