The Reserve Bank of Australia raised its cash rate target by 25 bps to 4.85% in a 6-3 majority decision, with three members voting to hold rates steady. The hike was in line with expectations, marking the fifth increase this year and taking borrowing costs to their highest since late 2008. The move reflects persistent, broad-based inflationary pressures, with elevated fuel and commodity prices amid the Middle East conflict, tighter domestic capacity constraints and AI-related demand for technology goods contributing to rising costs. Firms are also reporting rising costs and passing them on to consumers. Inflation is expected to remain above 3% over the coming year, reaching the top of the 2–3% target range only in late 2027, raising the risk that higher inflation expectations become embedded. Meanwhile, growth is expected to slow further, housing prices have fallen significantly and unemployment is projected to rise more than previously anticipated.