The Australian central bank on Tuesday raised its key rate by 25 basis points, to 4.85%, its highest level since November 2008.
The Reserve Bank of Australia’s decision was in line with the expectations of economists polled by Reuters and marked its fifth rate hike this year.
In its statement, the RBA said the decision was a split decision, with six members voting for the increase and three opting to remain.
It also comes as the country continues to face high inflation, with the consumer price index rising 4.3% in September, up from 4% in August, marking its highest level since March.
The central bank also said inflation is now “expected to remain elevated for much of 2027”, and is not expected to fall back to its target range of 2-3% until the end of 2027, three quarters later than expected.
This is due to rising prices of fuel and other raw materials, as well as factors such as AI-related investments, which are driving rapid growth in the prices of technology-related goods, the RBA said.
In her September decision, RBA Governor Michelle Bullock said inflation was “too high”, driven by rising oil prices due to the war in Iran and rising domestic spending.
“We are seeing signs that upside risks to inflation are materializing,” she added, saying further hikes would be expected “if that is what is needed to bring inflation down.”
Growth slowed in the first two quarters of 2026. Australia’s GDP grew 2.1% in the June quarter from a year earlier, compared to 2.5% in the March quarter.
The RBA is trying to bring inflation under control as rising borrowing costs and cost of living pressures weigh on households and activity.
Asked if she saw a recession in Australia, Bullock said that was “not our base case scenario at the moment”.
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