Australia hikes interest rate to 18-year high

Australia's central bank on Tuesday raised its benchmark interest rate by 25 basis points to an 18-year high of 4.85% amid persistent inflation pressures, in line with expectations.

The decision by the Monetary Policy Board of the Reserve Bank of Australia (RBA) was passed by majority, with six members voting for the quarter-point hike and three members favoring keeping the cash rate target unchanged at 4.60%.

The board highlighted that inflation remains elevated and broadly based, with updated staff forecasts revising the medium-term inflation outlook higher.

The revised outlook stems from elevated fuel and commodity prices driven by Middle East geopolitical conflict, alongside tighter domestic capacity constraints and surging costs for technology goods fueled by investment in AI.

Inflation is projected to stay above 3% over the coming year and is not expected to return to the central bank's 2-3% target corridor until late 2027, about three quarters later than previously estimated.