Australia raises interest rates to 4.85%, highest level since 2008, and predicts high inflation until 2027

The Reserve Bank of Australia (RBA) raised the basic interest rate by 0.25 percentage points, to 4.85%, on Tuesday. According to CNBC, the level is the highest since November 2008 and marks the fifth increase by the monetary authority in 2026. The decision followed what economists consulted by Reuters expected, but the collegiate was not unanimous: six members voted for the increase and three preferred to maintain the rate.

The reason is inflation, which has accelerated again. The Australian consumer price index rose 4.3% in September, up from 4.0% in August, the highest level since March, according to CNBC. For the RBA, more expensive fuels and commodities, added to investment linked to artificial intelligence, which puts pressure on the prices of technology goods, are among the causes of the pressure.

The institution's projection is for high inflation throughout much of 2027. The return to the target of 2% to 3% should only occur at the end of 2027, three quarters later than the bank previously predicted. In September, Governor Michelle Bullock had already highlighted inflation as very high, due to more expensive oil, a reflection of the war in Iran, and stronger domestic spending.

At the same time, the economy lost momentum. Australian GDP grew 2.1% in the second quarter of 2026 compared to the same period in the previous year, compared to 2.5% in the first quarter, and the pace slowed in the first two quarters of the year. Bullock stated that further interest rate hikes are possible, if necessary to contain inflation, but that a recession is not, for now, the base scenario.

The RBA's challenge is to contain inflation without causing the economy to contract. The combination of slowing growth and pressured prices explains why the decision was divided within the collegiate.

What changes for the investor

Higher interest rates make credit more expensive and reduce the present value of future profits, which tends to weigh more heavily on growth companies, such as technology, whose expected returns are concentrated ahead. For those who follow the Nasdaq, the Australian case reminds us that the cost of money remains relevant to the valuation of these securities. The bank also cited investment in artificial intelligence as a factor in putting pressure on prices, a topic that is usually at the center of discussions about the sector. Without predicting prices or suggesting buying or selling, it is worth following the next inflation data from Australia and the RBA's statements, which left open the possibility of new increases.

Automatically translated from Portuguese.