Australia Raises Interest Rates to 18-Year High in Split Vote

Australia's latest interest rate increase follows repeated attempts to bring inflation back to target. The November decision was the fifth increase this year, according to FT Economics, which reported that inflation remained above target.

The economy was already showing signs of strain. On November 1, Bloomberg reported that Westpac's profit missed expectations and that Chief Executive Officer Anthony Miller described Australia's economic outlook as uncertain.

Housing was another pressure point. The Sydney Morning Herald reported that Westpac expected interest rates to remain elevated and forecast an 11 per cent fall in house prices by March.

On November 2, WSJ reported that Australia's housing slump was deepening as the Reserve Bank prepared for another rate rise. That placed the prospect of higher borrowing costs alongside an already weakening property market.

On November 3, the Reserve Bank raised the cash rate by 0.25 percentage points, from 4.6% to 4.85%. The Conversation reported that this was the highest level since late 2008.

The increase matched economists' expectations, according to CNBC. But the decision was not unanimous: investingLive reported a six-to-three vote.

The warning accompanying the decision went beyond inflation. The Independent reported that the governor said the central bank's new forecast showed economic growth slowing markedly.

The cash rate now stands at 4.85%, and there is no assurance that the tightening is finished. RBA governor Michele Bullock said this increase might not be enough, according to investingLive, which also reported that the central bank was trying not to pre-commit.

Political pressure has intensified too. On November 4, the Sydney Morning Herald reported mounting pressure on the treasurer to find budget savings after the increase. The immediate debate now combines persistent inflation, weaker housing and the central bank's forecast of slower growth.

The central question is whether the latest increase will be enough to restrain inflation. Bullock's warning leaves further action possible, but the coverage does not establish a commitment to another rise, according to investingLive.

Housing and budget decisions are also in focus. Westpac's forecast of further house price weakness, reported by the Sydney Morning Herald, provides one measure to watch, while the same outlet's November 4 report points to pressure for spending savings rather than an announced budget response.