Australia's central bank hikes interest rates for the fourth time this year to a 15-year high

The decision

The Reserve Bank of Australia (RBA) decided on Tuesday, September 29, to lift the cash rate target by 25 basis points to 4.60 per cent, according to the bank's official media release. ABC News reports this marks the fourth rate increase this year, and the decision by the Monetary Policy Board was unanimous. SMH.com.au notes the new rate is the highest in 15 years and the second-highest among advanced economies worldwide, behind only Iceland.

Why rates are rising

In its statement, the RBA explains that inflation remains elevated and some of the upside risks flagged in August are now materialising. The conflict in the Middle East has broadened, pushing global energy prices higher, while AI-related demand is driving rapid growth in global prices for technology goods. The bank says firms are facing cost pressures and are either raising prices or planning to. According to the RBA's own forecasts, cited by SMH, trimmed-mean inflation is expected to stay above the 2–3 per cent target midpoint until mid-2028.

At the same time, output growth has slowed, though it came in slightly stronger than expected in the June quarter. Housing prices have fallen in most capital cities and new housing loans have declined noticeably, while labour market conditions have eased somewhat.

Impact on households

ABC News notes the rate hike is felt most through mortgage repayments, but it also affects renters, savers, and those with car or personal loans. Commonwealth Bank economist Belinda Allen explains that higher rates make borrowing more expensive and saving more attractive, which slows household spending and helps bring inflation back toward the RBA's 2–3 per cent target. SMH adds that this hiking cycle will hit Australians harder than the one in 2023, since the share of mortgages on fixed rates has dropped from about 40 per cent back then to around 5 per cent now.

Political fallout

SMH reports that with a depleted budget, Prime Minister Anthony Albanese will find it harder to repeat the pre-election spending strategy he used previously. Independent economist Chris Richardson and UNSW professor Richard Holden have both criticised the government's spending approach, with Holden accusing it of "frittering away a $400 billion fiscal windfall." RBA Governor Michele Bullock said inflation was already too high before the Middle East war began, and the conflict has since worsened it through higher petrol and fertiliser prices.

What comes next

Analysts are divided on further moves — Westpac, NAB and CBA expect no more hikes this year, while ANZ, HSBC and UBS see a possible additional increase in November. The RBA's next decision is due on November 3.