Sydney:Australia's central bank has raised its key interest rate to an 18-year high, marking the fifth such increase in 2026. The decision was made in response to persistent inflation pressures, attributed partly to rising fuel and commodity prices amid ongoing conflict in the Middle East.

According to Namibia Press Agency, the Reserve Bank of Australia's Monetary Policy Board decided during a two-day meeting to increase the cash rate target by 0.25 percentage points, bringing it to 4.85 percent. This follows four previous increases of the same magnitude in February, March, May, and September, and represents the highest level for the key interest rate since 2008.

The recent rate hike was anticipated by all four of Australia's major banks. Their forecasts were influenced by official figures released on October 28, which revealed an increase in annual inflation from 4.0 percent in August to 4.3 percent in September. Additionally, the annual trimmed mean inflation, a key measure of underlying inflation, rose slightly from a revised 3.5 percent to 3.6 percent, exceeding the central bank's target range of 2-3 percent.

The Monetary Policy Board noted that inflation is expected to remain high through much of 2027 and may not return to the top of the target range until late that year. The board also highlighted risks to inflation and economic growth due to the unresolved conflict in the Middle East, which continues to disrupt global oil supplies and elevate energy prices. Furthermore, domestic capacity pressures were reported to be stronger than previously estimated, with higher fuel prices increasingly affecting the cost of other goods and services.

The board's decision was passed by a 6-3 majority, with six members voting for the rate increase and three preferring to maintain it at 4.60 percent. The Monetary Policy Board is set to convene its final meeting of 2026 in early December to consider any further adjustments to the cash rate target.