Why the RBA raised interest rates on Cup Day for the fifth time | The Business | ABC NEWS

Financial markets were betting on an interest rate rise on Melbourne Cup Day and the RBA board delivered.

The central bank raised rates for a fifth time this year by a quarter of a percentage point, taking the cash rate to 4.85 per cent - its highest level in 18 years.

If lenders pass on the rate hike on in full, borrowers with a $750,000 mortgage, will see their repayments rise by $115 a month. After five hikes, they are now paying $570 more a month than they were before the RBA began raising rates in February.

This latest hike may not be the last. The RBA says it expects inflation to stay elevated into 2027. Reserve Bank Governor Michele Bullock pointed to the oil shock, weak productivity and surging investment in AI data centres as factors adding to inflationary pressures.

AMP chief economist Shane Oliver said the decision to increase rates was the "right call."

However, in Canberra, the political blame game was quick to follow. Treasurer Jim Chalmers said, "the Middle East is a big factor in the uptick in inflation. It's the primary driver of that uptick in inflation. But it's not the only driver. "

While Shadow Treasurer Tim Wilson said, "we've had five (rate hikes) now this year. Most advanced countries have had one and that is because we have a persistent problem around government spending."

But the finger-pointing offers little relief to households already feeling the squeeze.

Business reporter Lin Lin was at the RBA press conference. She asked the RBA governor if she was prepared to hike rates further and risk a recession, if that's what's needed to bring inflation down?

Michele Bullock said the board is not looking to tip the economy into recession if they can avoid it. "But we do need to get inflation down and we do have excess demand at the moment." She said.

The Reserve Bank has dropped its explicit warning of further rate rises, but hasn't ruled them out, and a split decision suggests growing uncertainty over where rates go next.

However, EY Oceania chief economist Cherelle Murphy says she'd be very surprised if there's another rate hike in December.
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