Australia’s central bank on Tuesday raised its benchmark cash rate by 25 basis points to 4.85%, the highest level since November 2008.
The Reserve Bank of Australia’s move is in line with expectations from economists polled by Reuters and is the fifth interest rate hike this year.
In a statement, the RBA said the decision was divided, with six directors voting in favor of the increase and three choosing to leave it unchanged.
This comes as the country continues to grapple with high inflation, with the consumer price index rising 4.3% in September, up from 4% in August and the highest level since March.
The central bank also said inflation is now expected to “remain elevated through much of 2027” and is not expected to return to its 2-3% target range until the second half of 2027, three quarters later than previously expected.
The RBA said this was due to factors such as AI-related investment, which is causing a rapid rise in the price of technology-related goods, as well as higher fuel and other commodity prices.
In a September decision, RBA Governor Michelle Block said inflation was “too high” due to soaring oil prices due to the Iran war and increased domestic spending.
“There are signs that the upside risks to inflation are materializing,” he said, adding that further rate hikes would be taken “if necessary to contain inflation.”
Growth slowed in the first two quarters of 2026. Australia’s GDP grew by 2.1% year-on-year in the June quarter, slowing from the 2.5% increase in the March quarter.
The Reserve Bank of Australia is trying to bring inflation back under control as rising borrowing costs and cost of living pressures weigh on household budgets and economic activity.
Asked if he thought Australia was heading into a recession, Mr Block said: “Recession is not our base case scenario at this point.”
