Australia Hikes Rates to 18-Year High as AI Fuels Inflation

Australia’s central bank raised its interest rate by 25 basis points to 4.85% on Tuesday, warning that inflation would stay elevated through much of 2027 as energy costs and AI-related investment added to price pressures.

The Reserve Bank of Australia’s monetary policy board voted 6–3 for the increase, with three members preferring to hold rates at 4.60%.

The bank pushed back 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.

“AI-related investment is driving rapid growth in prices for technology-related goods,” the board said, alongside higher fuel and commodity prices affected by the Middle East conflict. The interest rate in Australia is now at its highest level in 18 years.

“Today’s decision by the RBA was widely expected, but that doesn’t make it any easier for families and businesses,” said Australian Treasurer Jim Chalmers. “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, even as Fed officials have also warned that the AI investment boom is adding to price pressures, including for computer equipment and utilities.