Key Highlights

The cash rate of 4.85 per cent is 50 basis points above the 4.35 per cent level from before the 2025 cuts.

The RBA's documents say a higher setting was needed to bring Inflation back to target.

Higher energy prices linked to the Middle East conflict have added to inflation pressures.

The Bank's latest forecasts have inflation staying above 3 per cent until late 2027.

For Australian borrowers, 4.35 per cent is a familiar number. It was the cash rate target before the Reserve Bank of Australia's first cut on 19 February 2025, and it was the level the target returned to on 6 May 2026 after three rises earlier this year.

That reference point has now been left behind. Following the Monetary Policy Board's decision on 3 November 2026, the cash rate target is 4.85 per cent, effective 4 November. That is 50 basis points above the old 4.35 per cent setting.

Why has the RBA gone further this time?

From 4.35 per cent and back again

The arithmetic is straightforward. In 2025, the RBA cut three times by 25 basis points each, reaching 3.60 per cent on 13 August 2025. In 2026, the Board raised the rate five times by 25 basis points each.

The first three 2026 rises, in February, March and May, brought the target back to 4.35 per cent. After holds at the June and August meetings, the Board lifted the rate to 4.60 per cent from 30 September, then to 4.85 per cent from 4 November. Those last two moves account for the 50-basis-point Margin over the pre-easing level.

What is different now

The RBA's November documents point to several forces that, in the Board's judgement, warranted a higher setting.

Inflation has proved more stubborn. The November Statement on Monetary Policy (SMP) says the inflation outlook was "revised materially higher". The RBA now forecasts headline CPI inflation peaking at 4.5 per cent in the December quarter of 2026, against 3.6 per cent in the August forecasts. For trimmed mean (underlying) inflation, the June 2027 forecast rose from 3.0 per cent to 3.5 per cent. Both measures are forecast by the RBA to stay above 3 per cent until end-2027.

Energy prices have jumped. The SMP says higher energy prices from the Middle East conflict have added to pressures. The RBA's assumption for the oil price in the December quarter of 2026 is 35 per cent higher than in August, with Brent assumed at US$109.5 a barrel. The Board's statement notes: "The Middle East conflict remains unresolved".

Inflation is broadly based. The Board's statement says: "Since the previous meeting, the data have confirmed that underlying inflation remains broadly based." The latest data show trimmed mean inflation of 1.0 per cent in the September quarter, up from 0.8 per cent in the June quarter, and 3.7 per cent over the year. Headline CPI was 3.9 per cent over the year to the September quarter and 4.3 per cent over the year to September on the monthly measure.

Expectations are a growing worry. For the six members who voted for the rise, the statement says "there is an increasing risk that higher inflation expectations will become embedded." The RBA has also revised up its wage forecasts, citing tighter capacity, higher inflation and inflation expectations, and its liaison contacts report elevated wage expectations.

Capacity is limited. In her opening statement to the Senate Economics Legislation Committee on 28 October, Governor Michele Bullock said "continued weak productivity growth means that the economy cannot grow strongly without putting pressure on inflation."

Taken together, these factors help explain why the Board did not regard 4.35 per cent, or 4.60 per cent, as sufficient. Three members did vote to keep the rate at 4.60 per cent, and the statement gives no reasons for their view.

Higher, but in a different economy

A cash rate above its earlier peak does not mean the economy is in the same condition as before. On several measures, the RBA's assessment describes an economy that is softer now.

"The economy is slowing," the Board's statement says. Household consumption has been a key drag on growth. The SMP notes housing prices have fallen about 5 per cent from their March peak, with national prices 4.7 per cent below that peak in September. Unemployment reached 4.7 per cent in September 2026, and the RBA forecasts it rising to 5.1 per cent by end-2028.

Financial conditions have also tightened beyond the cash rate itself. The SMP says government bond yields are at multi-year highs and that the Board judges financial conditions to be restrictive, though the extent is uncertain.

Some context on housing is also relevant. Governor Bullock told the Senate committee that "housing prices are around 50 per cent higher than they were in early 2020." The recent declines have come from that elevated base.

The Financial Stability Review released on 1 October 2026 found that most borrowers are well placed for softer growth and lower housing prices, with most having positive Equity and large savings buffers. It also said "the Australian financial system remains resilient, but there's no room for complacency."

Will 4.85 per cent be the new reference point?

The RBA does not say. Its forecasts assume a cash rate path based on market pricing as at 28 October 2026. On a year-average basis, that assumption is 4.7 per cent for 2026, 4.8 per cent for 2027 and 4.8 per cent for 2028. Market pricing implied the cash rate rising about 35 basis points by mid-2027 before stabilising at 4.8 per cent in 2028.

Those are market-based assumptions used to construct the forecasts, not a commitment by the Board. The statement says "the Board will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions." It also says "Monetary policy is well placed to respond to developments".

For households, lenders set their own rates. The relationship between the cash rate and a particular Loan rate can differ from one lender and product to another, so a comparison of cash rate levels across time does not translate neatly into individual repayments.

The bottom line

At 4.85 per cent, the cash rate is 50 basis points above the 4.35 per cent setting that applied before the 2025 cuts. The RBA's November documents explain why: an inflation outlook revised materially higher, an energy price shock, broadly based underlying inflation and a rising risk that expectations become embedded, against a backdrop of weak productivity growth. The economy the higher rate is acting on is slowing, with falling housing prices and rising unemployment. Whether the setting stays, rises or falls from here will depend, the Board says, on the data.