Australia Raises Interest Rate to 18-Year High at 4.85%

Australia's central bank raised borrowing costs to their highest level in 18 years on Tuesday, November 3, 2026, increasing its benchmark cash rate to 4.85% as policymakers intensified efforts to contain persistent inflation across the country.

The Reserve Bank of Australia (RBA) increased the cash rate by 25 basis points, bringing it to a level last recorded in November 2008. The decision reflected growing concerns about rising consumer prices and the possibility that inflation could remain above the central bank's target for an extended period.

The decision was not unanimous. According to the RBA, six members of its monetary policy board supported the increase, while three voted to leave interest rates unchanged.

Australia's consumer price index rose 4.3% in September, compared with 4% in August. The latest reading marked the highest annual inflation rate since March, highlighting the continuing challenge facing monetary policymakers.

The RBA also revised its inflation outlook, warning that price pressures would persist through much of 2027. Inflation is now expected to return to the central bank's target range of 2%-3% only in late 2027, three quarters later than previously projected.

According to the central bank, higher fuel and commodity prices are contributing to the worsening outlook. Investment linked to artificial intelligence is also accelerating price increases for technology-related goods.

RBA Governor Michele Bullock had previously addressed inflation concerns following the bank's September policy decision. She identified rising oil prices associated with the Iran War and stronger domestic spending as contributing factors.

Bullock described the country's inflation situation as "too high," highlighting the need to bring price growth under control.

She also pointed to emerging warning signs in the economic outlook, saying, "We're seeing signs that upside risks to inflation are materializing," and added that further increases would be considered "if that's what's needed to get inflation down."

Meanwhile, Australia's economic growth has moderated during the first half of 2026. Gross domestic product increased 2.1% in the June quarter compared with the same period a year earlier, down from 2.5% growth recorded in the March quarter.

Higher interest rates are adding pressure to households already dealing with elevated living costs. The RBA faces the challenge of reducing inflation while tighter borrowing conditions weigh on household finances and broader economic activity.

Asked whether Australia was heading toward a recession, Bullock said that outcome was "not our base case at the moment."