Australia raises rates to 4.85%

Australia's central bank 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 was in line with expectations from economists polled by Reuters, and marked its fifth rate increase this year.

In its statement, the RBA said that the move was a split decision, with six members voting for the increase and three opting for a hold.

Inflation in Australia reached 4.3% in September, up from 4% in August and the highest level since March.

The RBA also said inflation is now expected to 'remain elevated through much of 2027,' and not expected to fall back into its 2%-3% target range until late 2027.

Higher fuel and other commodity prices, in addition to factors including AI-related investment, which is driving rapid growth in prices for technology-related goods, contributed to the inflationary pressures, according to the RBA.

RBA governor Michelle Bullock cited higher oil prices from the Iran War and stronger domestic spending as key factors behind the current inflation rate.

Bullock warned that upside risks to inflation are materializing and that additional hikes will come 'if that's what's needed to get inflation down.'

Growth in Australia slowed in the first two quarters of 2026. Australia's GDP rose 2.1% in the June quarter compared to a year earlier, down from 2.5% in the March quarter.

The RBA is trying to bring inflation back under control while higher borrowing costs and cost-of-living pressures weigh on households and activity.

When asked if she sees a recession for Australia, Bullock said that it is 'not our base case at the moment.'