TLDR
The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.85%.
Rates in Australia are now at their highest level in 18 years.
The board voted 6-3, with three members wanting to hold at 4.60%.
AI investment and higher fuel prices are pushing up inflation.
Inflation is not expected to reach the top of the target range until late 2027.
Australia’s central bank raised its benchmark interest rate on Tuesday, lifting the cash rate target by 25 basis points to 4.85%. The move takes rates in Australia to their highest level in 18 years.
The Reserve Bank of Australia said inflation remains elevated and is broadly based across the economy. It now expects inflation to stay high through much of 2027.
The bank’s Monetary Policy Board made the decision by majority vote. Six members backed the increase, while three members voted to keep the rate unchanged at 4.60%.
AI Investment and Energy Costs Push Prices Higher
The board pointed to several sources of price pressure. Higher fuel and commodity prices, affected by the conflict in the Middle East, have added to costs.
“AI-related investment is driving rapid growth in prices for technology-related goods,” the board said in its statement. It added that inflation in many goods and services remains high.
The bank said its business contacts report rising cost pressures. Many firms are either raising prices for their goods and services or planning to do so.
Domestic capacity pressures were also judged to be a little tighter than earlier thought. The board said there are signs that higher fuel prices are being passed on to the prices of other goods and services.
Updated staff forecasts revised the inflation outlook materially higher. Inflation is not expected to reach the top of the 2% to 3% target range until late 2027, about three quarters later than previously forecast.
The board warned this creates upside risks to inflation expectations. It said some measures of those expectations have risen lately, and there is an increasing risk that they become embedded.
Economy Slows as Rates Rise
The RBA said rate increases since the start of the year have tightened financial conditions. The economy is slowing, housing prices have fallen sharply, and the unemployment rate has risen.
The bank expects output growth to slow further over the coming year. Higher rates and falling housing prices and turnover are expected to weigh on household spending and home building.
Business investment is forecast to grow faster in the near term, including investment in data centres. Employment is expected to keep growing, but unemployment is projected to rise more than the bank expected in its August forecasts.
The board said uncertainty about the outlook remains high. The Middle East conflict is unresolved, and global oil supply disruptions continue to push up energy prices.
Growth among Australia’s major trading partners has been stronger than expected so far. The board said the boost from AI-related investment has outweighed the negative effects of the Middle East conflict.
In Australia, weak productivity growth continues to limit potential growth. The board also noted uncertainty about how deep the housing downturn will go and how it will affect the economy.
Australian Treasurer Jim Chalmers said the decision was widely expected but still hard for households and businesses. “It’s difficult news for many Australians who are already paying a hefty price for circumstances outside their control,” he said.
Today’s decision by the RBA was widely expected, but that doesn’t make it any easier for families and businesses.
It’s difficult news for many Australians who are already paying a hefty price for circumstances outside their control.
We take responsibility for our part of the…
— Jim Chalmers MP (@JEChalmers) November 3, 2026
The board said it will stay attentive to the data and do what it considers necessary to bring inflation back to target. It said it remains focused on its mandate of price stability and full employment.
The decision contrasts with the US Federal Reserve, which held rates last week. Fed officials have also warned that the AI investment boom is adding to price pressures, including for computer equipment and utilities.
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