Key points: Tuesday's rate decision was split, with six board members backing a hike and three preferring to keep rates unchanged. The Reserve Bank of Australia lifted its inflation forecasts, saying price growth is not expected to return to its 2%-3% target band until late 2027. The RBA attributed stubbornly high inflation to rising fuel and other commodity prices, along with rapid price increases for tech-related goods driven by artificial intelligence investment. On May 5, 2026, RBA Governor Michele Bullock attended a press conference at the central bank's headquarters in Sydney, Australia.
The Reserve Bank of Australia raised its benchmark cash rate by 25 basis points to 4.85% on Tuesday, the highest level since November 2008.
The move matched the expectations of economists surveyed by Reuters and marked the central bank's fifth rate increase of 2026. According to the RBA's statement, the vote was divided: six members supported the hike, while three wanted to hold rates steady.
Australia remains mired in a high-inflation environment, with the September consumer price index up 4.3% year-on-year, faster than August's 4.0% and the highest reading since March. The central bank also noted that inflation will stay elevated for most of 2027 and will not ease back to the 2%-3% target range until late 2027, three quarters later than previously forecast.
The RBA said climbing fuel and commodity prices on one hand, and soaring prices for tech goods fueled by artificial intelligence-related investment on the other, are combining to push inflation higher. At the September policy meeting, RBA Governor Michele Bullock said inflation was "too high," with the Iran conflict driving up oil prices and strong domestic consumer spending also lifting prices.
She added: "We have seen the upside risks to inflation materialize," and stated that "if further rate increases are necessary to bring inflation down, we will take them."
Australia's economic growth had already slowed in the first two quarters of 2026. GDP grew 2.1% year-on-year in the June quarter, down from 2.5% in the March quarter. The RBA is striving to bring inflation back under control, but higher borrowing costs and cost-of-living pressures are weighing on households and broader economic activity.
When asked whether Australia would fall into recession, Bullock said: "A recession is not our base case at the moment."
Comments