RBA lifts cash rate to 4.85%, highest level since 2008

The Reserve Bank of Australia raised the official cash rate by a quarter of a percentage point to 4.85% on Tuesday, Melbourne Cup Day. It is the highest level since 2008 and the fifth increase this year.

The board was not unanimous. Six members voted for the rise and three voted to hold. It was not immediately clear whether the three dissenters wanted no increase at all or simply preferred to wait for more data, and Governor Michele Bullock may be asked about that at her press conference.

The Reserve Bank now expects inflation to stay above 3% for another year. It does not expect inflation to return to its target band until the end of next year, at least 14 months away.

Bullock rejects oil-price explanation

Speaking after the decision, Ms Bullock said global oil prices were one reason inflation was staying higher for longer. She stressed that the bank was not lifting rates because of the direct effect of oil prices on inflation, and said she knew there was confusion in the community on the point.

She also pointed to domestic capacity pressures that existed before the conflict in the Middle East. Radio 4BC's hosts read this as a pointed message to the federal government ahead of Treasurer Jim Chalmers' response. That reading is the hosts' interpretation, and Ms Bullock did not mention the Treasurer in the remarks reported here.

Analyst: no good options

Scott Phillips of The Motley Fool told 4BC that Ms Bullock had been about as clear as she could be. He noted that Reserve Bank officials usually avoid anything that looks political and that she has repeatedly resisted commenting on fiscal policy. In his view, inflationary pressures were already present before the war in Iran began.

Mr Phillips said the bank faced a choice between bad outcomes. It had to weigh raising rates now against letting inflation run unchecked. He argued that households and small businesses with loans have less to spend as a result, which eases the demand pressures outpacing supply. He said the effect of not acting can never be measured.

Asked whether the split vote might signal the end of the tightening cycle, Mr Phillips called that probably wishful thinking. He said it would depend on the dissenters' reasoning.