RBA Slams Brakes on Economy with Highest Rate Hike in 15 Years

The Reserve Bank of Australia (RBA) has increased the cash rate by 25 basis points to 4.60%, the highest level in nearly 15 years, as policymakers respond to persistent inflation and rising energy costs.

The RBA's decision comes after a unanimous vote from its Monetary Policy Board, which cited elevated inflation, energy price increases, and rapidly rising technology-related goods prices as key concerns.

Inflation remains above the RBA's target range of 2-3%, with headlined inflation running at 3.5% annually in July and underlying inflation around 3.6%. The central bank is also concerned about capacity pressures, short-term inflation expectations, and the impact of previous rate hikes on households.

The latest increase will flow quickly through to households with variable-rate mortgages, adding approximately A$91 a month to repayments on a A$600,000 mortgage with 25 years remaining. The cumulative effect of this year's rate increases has cut the borrowing capacity of a median-income household by almost A$90,000.

The RBA stopped short of signalling that Tuesday's move marked the end of the tightening cycle, leaving another hike firmly in play if inflation remains stronger than expected.