Australia Hikes Interest Rates to 18-Year High Amid Persistent Inflation

Australia’s central bank has raised its benchmark cash rate by 25 basis points to 4.85%, marking its third consecutive meeting increase and pushing borrowing costs to their highest level since November 2008. Tuesday’s decision aligns with expectations from economists polled by and represents the central bank’s fifth rate increase of the year, cementing its outlier status among major global monetary authorities.

The policy move emerged from a split decision within the Reserve Bank of Australia board, where six members voted in favor of the increase while three members favored holding rates steady. The tightening cycle reflects persistent domestic price pressures, underscored by the consumer price index climbing to 4.3% in September, up from 4% in August and reaching its highest level since March.

Alongside the rate increase, the central bank significantly revised its macroeconomic projections. Officials stated that inflation is now expected to remain elevated through much of 2027, delaying its return to the target range of 2% to 3% until late 2027—three quarters later than previous forecasts.

The central bank attributed the stubborn price growth to elevated fuel and commodity prices, alongside emerging pressures such as artificial intelligence-related investments driving rapid price increases for technology-related goods. During a previous policy announcement in September, RBA Governor Michelle Bullock emphasized that inflation remained unacceptably high, fueled by higher oil prices stemming from the conflict involving Iran and robust domestic spending.

“We’re seeing signs that upside risks to inflation are materializing,” Bullock said, adding that additional rate increases would follow “if that’s what’s needed to get inflation down.”

Economic growth has shown signs of deceleration across the first two quarters of 2026. Gross domestic product rose 2.1% in the June quarter compared to the same period a year earlier, easing from a 2.5% expansion in the March quarter. The central bank faces the ongoing challenge of cooling price growth while rising borrowing costs and broader cost-of-living pressures weigh heavily on household finances and overall economic activity.

When questioned during a news conference at the central bank’s headquarters in Sydney regarding the possibility of an economic downturn, Bullock stated that a recession is “not our base case at the moment.”