RBA Raises Rates to 4.85% as Australia's Housing Slump Deepens

Australia's latest interest rate decision arrived with the housing market already weakening. On November 2, WSJ reported that the housing slump was deepening ahead of another expected increase in borrowing costs.

The pressure was also visible in banking results. Westpac's profit missed expectations, and Chief Executive Officer Anthony Miller said Australia's economic outlook remained uncertain, according to Bloomberg.

On November 1, Bloomberg reported Westpac's profit miss. Breaking News on Seeking Alpha Business & Economy also reported that loan loss provisions had climbed.

That same day, the Sydney Morning Herald reported that Westpac posted a $6.8 billion profit and expected house prices to fall 11%. The lender expected interest rates to remain elevated and prices to have fallen more than 10% by March.

On November 2, WSJ reported further declines in Australian home prices. The Sydney Morning Herald reported that the expected rise to the highest interest rate level since 2008 was sparking recession fears.

On November 3, the expected increase became a decision. The RBA raised rates by 25 basis points, its fifth increase this year, according to the Sydney Morning Herald. CNBC reported that the move matched economists' expectations.

The cash rate now stands at 4.85%, following a six-to-three vote, according to investingLive. Bloomberg Economics described the decision as taking Australia's key rate to an 18-year high.

Inflation remains the reason for tightening despite the housing decline. FT Economics reported that inflation was still above target, while investingLive reported the RBA expected it to remain above 3% until late 2027.

The immediate issue is whether house prices keep falling as borrowing costs rise further. Westpac's forecast provides a concrete benchmark: an 11% decline, with prices expected to have fallen more than 10% by March, according to the Sydney Morning Herald.

The other question is how quickly inflation eases. The RBA's expectation that it will remain above 3% until late 2027, reported by investingLive, leaves borrowers facing uncertainty over how long high rates will last.