RBA jacks up rates by 25 basis points, now at 4.85% and an 18-year high

The Reserve Bank of Australia raised its benchmark interest rate by 25 basis points on Tuesday, parking it at 4.85% — the highest it has been in 18 years. The monetary policy board split 6–3 on the call, with three members pushing to leave rates sitting at 4.60%. The board was blunt about why. "AI-related investment is driving rapid growth in prices for technology-related goods," it said, pointing also to fuel and commodity costs swollen by the Middle East conflict. Translation: the stuff Australia buys is getting more expensive, and the bank doesn't think that fades soon.

The RBA also conceded it will take longer to wrestle inflation back into its 2% to 3% target range. It now expects a return to the top of that band in late 2027 — roughly three quarters later than it had previously forecast. In other words, the fight stretches well past the next year. Australian Treasurer Jim Chalmers didn't sugarcoat it. "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 hike puts Australia out of step with Washington. The US Federal Reserve chose to hold rates steady last week, even as its own officials flagged that the AI investment boom is stoking price pressures — in computer equipment and utilities, among other places. That divergence matters for anyone watching global rate paths. Two central banks, the same AI-driven cost story, two different answers. The Fed is watching. The RBA just moved. The rate now sits at 4.85%, and the board's message is that it isn't done waiting for inflation to behave.