Reserve Bank of Australia Raises Rates to 18-Year High as Inflation Persists

What’s happening

The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.85%, the highest level since 2008, marking the fifth rate hike this year. The move signals the RBA's determination to combat persistent inflation despite economic headwinds and comes as eurozone inflation hit 4% for the first time in three years.

Market impact

Higher Australian rates strengthen the AUD and increase borrowing costs for companies and consumers, potentially dampening growth. The RBA's aggressive stance also signals that central banks globally remain in tightening mode, supporting higher bond yields and pressuring equities sensitive to discount rates.

Broader implications

The RBA's continued hiking cycle, despite slowing growth, reflects the challenge central banks face in controlling inflation without triggering recession. This dynamic will likely persist across developed economies, keeping financial conditions tight and constraining asset valuations into 2027.