RBA Lifts Cash Rate to 4.60%, Its Highest Since 2011, in a Fourth 2026 Hike

SYDNEY — The Reserve Bank of Australia raised its cash rate target by 25 basis points to 4.60 per cent on Tuesday, the fourth increase this year and the highest setting since 2011, judging that inflation is still too high and that the upside risks it flagged in August are now materialising.

The decision was unanimous, and it surprised almost no one. Markets had priced a 90 to 95 per cent chance of a hike heading into the meeting, and all four of Australia's major banks had called it. The Australian dollar was little changed at $0.7014 after the announcement; traders now see about a 43 per cent chance of another quarter-point rise in November.

Oil, war, and AI top the board's warning list

The board's statement reads as a catalogue of the forces that have ambushed the disinflation story. 'Inflation remains elevated and some of the upside risks flagged in August are materialising,' it said. 'The conflict in the Middle East has broadened and global energy prices are now much higher than had been assumed in the August forecasts.'"

Two newer pressures made the list alongside the old ones. 'AI-related demand is driving rapid growth in global prices for technology-related goods,' the board said, 'and there remains pressure on domestic capacity.' Its business liaison found 'firms are experiencing cost pressures and are either increasing the prices of their goods and services or looking to do so,' while 'short-term measures of inflation expectations remain elevated' and 'recent inflation outcomes in Australia were stronger than expected at the previous meeting.'"

Energy is the thread running through it all. 'Global oil supply disruptions are maintaining upward pressure on global and domestic energy prices and inflation,' the statement said, adding that 'further disruptions to global oil supply' since August — and higher fuel prices partially passed through to other goods — have turned the risk into reality. Brent crude has climbed nearly 20 per cent since the board last met in August."

Three hikes, two pauses, and a fourth

'The three increases in the cash rate target since the beginning of the year have tightened financial conditions and the economy appears to be slowing,' the board said. 'But inflation is still too high and the Board judged that, in light of recent developments, a further tightening in financial conditions is warranted to support a return of inflation to target in a reasonable period.'"

The path here: three quarter-point increases since February took the rate to 4.35 per cent, with pauses in June and August on the view that earlier hikes needed time to work through the economy. Tuesday's move completes a full percentage point of tightening in 2026."

The data cooperated with the hawks. Annual inflation ran at 3.5 per cent in July with underlying inflation at 3.6 per cent — both above the bank's 2 to 3 per cent target — and the board noted June-quarter growth came in stronger than expected at the margin. The August monthly inflation print lands Wednesday, with headline inflation forecast at 4.1 per cent."

What it costs borrowers

The arithmetic of the fourth hike is stark for households. A quarter-point rise adds about $80 a month to repayments on a $500,000 home loan, according to Mortgage Choice. Canstar's figures: $91 a month on a $600,000 loan over 25 years, $114 on $750,000, and $152 on a $1 million debt. Across this year's four increases, the $600,000 borrower is paying $364 more a month than before they began; Finder puts the average borrower $427 a month worse off than in January."

A large cohort of borrowers has never experienced mortgage rates in a pre-financial-crisis environment, and the bank knows it. Governor Michele Bullock has pointed to buffers — resilient employment, household savings, and the bank's finding that about 40 per cent of mortgage holders carry two years of repayments in offset accounts — but senior economist Eleanor Creagh warned the higher repayments will weigh on households 'at a time when elevated living costs are continuing to bite.'"

One central bank in a global hiking wave

Australia is not hiking alone. Norway's central bank raised its rate a quarter point to 4.50 per cent last Thursday and said it may hike again; Sweden's Riksbank held at 1.75 per cent but signaled tightening before year-end; Switzerland's National Bank held at zero. The Federal Reserve, the European Central Bank, and the Bank of Japan all raised rates this month."

The market's base case keeps moving hawkish. Traders now see more than a 70 per cent chance the Fed hikes again at the end of October, and the 10-year Treasury yield sits above 5.1 per cent — its highest since 2007. Days before the decision, Bullock framed the era bluntly: 'I think we're moving into a new world,' she said. 'These shocks to the supply side of the economy are very difficult for monetary policy to deal with.'"

What decides the next move

Bullock faces the press at 3:30pm Sydney time on Tuesday. Then the data takes over: August's monthly inflation print on Wednesday, and the September-quarter trimmed mean — the number the Commonwealth Bank says could trigger a 4.85 per cent cash rate if it prints at 1 per cent or higher. ANZ is the only major bank with a second hike in its official forecast, seeing 4.85 per cent in November; Westpac and the Commonwealth Bank expect the board to hold."

The next scheduled decision is November 2-3 — Melbourne Cup Day. The board's closing line left the door open: it 'will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed.'"