Australia Hikes Interest Rate to 18-Year High

Australia’s central bank has raised its key interest rate to an 18-year high, citing persistent inflation and the impact of the prolonged war in the Middle East.

The Reserve Bank of Australia (RBA) announced on Tuesday that it had increased its cash rate by 25 basis points to 4.85 per cent.

In a statement, the bank said inflation remained high and that rising fuel and commodity prices linked to the Middle East conflict had added to the pressure.

“Inflation remains elevated. This partly reflects higher fuel and other commodity prices affected by the conflict in the Middle East,” the RBA said.

The bank also pointed to rising technology costs linked to increased investment in artificial intelligence (AI).

“AI-related investment is driving rapid growth in prices for technology-related goods, and inflation in many goods and services remains high,” it added.

This is the fifth rate hike this year. It is also expected to put more pressure on households by increasing mortgage repayments and other borrowing costs. Higher mortgage payments remain a major political issue in Australia, where many households are already struggling with the cost of living.

The new rate takes borrowing costs to their highest level since late 2008, during the global financial crisis. The RBA warned that uncertainty over the global economy could affect Australia’s economic growth and keep inflation high.

“There continue to be heightened uncertainties about the outlook for domestic economic activity and inflation,” the bank said.

It added that disruptions to global oil supplies were pushing up energy prices and increasing inflationary pressure.

“Global oil supply disruptions are maintaining upward pressure on global and domestic energy prices and inflation. A period of prolonged uncertainty may also cause growth to be lower overseas and in Australia,” the RBA said.