Australia lifts rates to 18-year high as AI boom, energy costs fuel 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.