Cash rate hits 18-year high in fresh blow for borrowers

THE Reserve Bank of Australia has raised the official cash rate to 4.85 per cent - the highest level since 2008.

In a split 6-3 decision on Tuesday, the central bank board raised interest rates by 25 basis points.

The decision was widely anticipated by economists and bond markets, which had been pricing in the chance of a hike at more than 80 per cent.

Since its meeting in September, the bank's fears that inflation would worsen, with higher oil prices and elevated spending on artificial intelligence infrastructure, had come to pass.

Hawkish commentary by top RBA officials, including Governor Michele Bullock, in the weeks leading up to the November meeting cemented the hike in the minds of many analysts.

For the average mortgage holder with a $600,000 loan, the five rate rises in 2026 mean monthly interest repayments will be more than $450 higher than in February, according to financial comparison site Canstar.

The decision was predicted by economists at Commonwealth Bank and NAB.

They both projected higher interest rates to slow Australia's economic growth rate to one per cent in 2027.

HSBC Australia chief economist Paul Bloxham said Australia's weak productivity growth had given the RBA no choice but to throw the economy into a hard landing or even a recession to bring inflation to heel.

While external factors, such as the Middle East conflict, have exacerbated Australia's inflation dilemma, economists have identified high government spending as a contributing factor.

Tuesday's rate rise heaps extra pressure on Treasurer Jim Chalmers to find savings in December's mid-year budget update.