Australia hikes rates to 18-year high to fight inflation

Michele Bullock, governor of the Reserve Bank of Australia (RBA), during a news conference at the central bank's head office in Sydney, Australia, on Tuesday, May 5, 2026. Australia's central bank raised its key interest rate for a third consecutive meeting, underscoring its determination to tame stubbornly strong inflation and cementing its outlier status among global counterparts. Photographer: Brendon Thorne/Bloomberg via Getty Images

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Australia's central bank raised its benchmark cash rate by 25 basis points to 4.85% on Tuesday, 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.

This also comes as the country continues to grapple with high inflation, with the consumer price index rising 4.3% in September, up from 4% in August and marking its highest level since March.

In its September decision, RBA governor Michelle Bullock said that inflation is "too high," driven by higher oil prices from the Iran War and stronger domestic spending.

"We're seeing signs that upside risks to inflation are materializing," she added, saying that additional hikes will come "if that's what's needed to get inflation down."

Growth has 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."

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