Australia’s central bank lifted its benchmark cash rate by 25 basis points to 4.85% on Tuesday, taking borrowing costs to their highest level since November 2008.
The Reserve Bank of Australia’s decision matched forecasts from economists surveyed by Reuters and marked the fifth interest-rate increase this year.
The RBA said the decision was split, with six board members voting for the rate hike and three supporting a hold.
The move comes as Australia continues to battle persistent inflation. The consumer price index rose 4.3% in September, accelerating from 4% in August and reaching its highest level since March.
The central bank also warned that inflation is likely to “remain elevated through much of 2027.” It now expects inflation to return to its 2%-3% target range only in late 2027—three quarters later than previously projected.
According to the RBA, the revised outlook reflects higher fuel and other commodity prices, as well as factors such as AI-related investment, which is contributing to rapid price growth for technology-related goods.
At the RBA’s September meeting, Governor Michelle Bullock said inflation was “too high,” citing increased oil prices linked to the Iran War and stronger domestic spending.
“We’re seeing signs that upside risks to inflation are materializing,” Bullock said, adding that further rate increases would be delivered “if that’s what’s needed to get inflation down.”
Economic growth has also weakened over the first two quarters of 2026. Australia’s gross domestic product rose 2.1% in the June quarter from a year earlier, slowing from 2.5% growth in the March quarter.
The RBA is seeking to bring inflation under control as elevated borrowing costs and the ongoing cost-of-living squeeze put pressure on households and weigh on economic activity.
Asked whether she expected Australia to enter a recession, Bullock said it was “not our base case at the moment.”
