Breaking: RBA lifts interest rates to highest level in 18 years to try to dampen inflation

The Reserve Bank has lifted interest rates to their highest level in 18 years, as it attempts to dampen inflation.

It has increased rates by 0.25 percentage points, which lifts the cash rate target to 4.85 per cent, up from 4.60 per cent.

The cash rate has not been this high in Australia since late 2008. It is the fifth time the bank has lifted rates in 2026.

The RBA board's decision to lift rates was not unanimous.

Six members voted to increase the cash rate target by 25 basis points to 4.85 per cent, while three members voted to leave the cash rate target unchanged at 4.60 per cent.

The majority decision will be another blow to households with mortgages, but individuals who have high-interest savings accounts will see their savings accruing more interest after today's decision, if their bank applies higher rates to their accounts.

In recent weeks, RBA officials have been signalling their intention to lift rates at today's meeting, arguing that they can not afford to see peoples' inflation expectations drift higher.

The RBA wants annual inflation in consumer prices to be around 2.5 per cent on average over the cycle.

"There is an increasing share of businesses who are thinking that maybe 3 to 3.5 per cent is the new normal [for inflation]," RBA deputy governor Andrew Hauser warned last month.

It takes between 12 and 18 months for a change in interest rates to flow completely through the economy, so we will not know what total impact this rate hike will have on economic activity until 2028.