Australia’s central bank raised its key interest rate by 25 basis points to 4.85% on Tuesday, warning that inflation will remain elevated through much of 2027 as energy costs and AI-related investment add to price pressures.
The Reserve Bank of Australia’s monetary policy board voted 6–3 for the increase, with three members preferring to keep rates at 4.60%. The move puts Australia’s interest rate at its highest level in 18 years.
Inflation forecast pushed back
The bank delayed its forecast for inflation to return to the top of its 2% to 3% target range until late 2027, around three quarters later than previously expected.
The board said AI-related investment was driving rapid growth in prices for technology-related goods, alongside higher fuel and commodity prices affected by the Middle East conflict.
Political and global context
Australian Treasurer Jim Chalmers said the decision was widely expected but still difficult for households and businesses. “Today’s decision by the RBA was widely expected, but that doesn’t make it any easier for families and businesses,” he said. “It’s difficult news for many Australians who are already paying a hefty price for circumstances outside their control.”
The increase contrasts with the US Federal Reserve’s decision to hold rates last week. Fed officials have also warned that the AI investment boom is adding to price pressures, including for computer equipment and utilities.
