Australia Lifts Benchmark Cash Rate to 4.85% to Tame Stubborn Inflation

Australia’s central bank increased its benchmark interest rate on Tuesday to tame persistent price pressures. The Reserve Bank of Australia lifted the cash rate by 25 basis points to 4.85%. This marks the fifth rate hike this year and places borrowing costs at their highest level since November 2008.

Split Decision Amid Lingering Price Pressures

The rate increase followed a divided meeting among policymakers. Six members of the board voted in favor of the hike, while three members preferred to keep the cash rate unchanged. The move aligned with general forecasts from market economists.

Inflation remains a persistent challenge for the economy. The consumer price index climbed to 4.3% in September, accelerating from 4% in August to reach its highest level since March. The central bank stated that inflation will likely stay elevated through much of 2027. Officials do not expect price growth to fall back into the bank’s target band of 2% to 3% until late 2027, which is three quarters later than earlier estimates.

Tech Spending and Slower Economic Growth

Policymakers pointed to several external and domestic drivers pushing prices upward. These pressures include pricier fuel and commodities, alongside heavy investment in artificial intelligence. The bank noted that AI-driven spending has spurred rapid price gains across technology-related products. Rising oil prices linked to the Iran War and robust local spending have also driven up costs.

Higher interest rates and cost-of-living challenges are already slowing broader activity:

• Economic growth cooled to 2.1% year-on-year in the June 2026 quarter, down from 2.5% in the March quarter.
• Central bank governor Michelle Bullock stated that further rate hikes remain possible if needed to curb inflation.
• A recession remains outside the central bank’s base-case outlook despite the cooling economy.