Australia's central bank hikes key interest rate to 18-year high

Australia's central bank raised its key interest rate to a 18-year high on Tuesday, citing the prolonged war in the Middle East and persistent inflationary pressures.

In a statement, the Reserve Bank of Australia said it would lift its cash rate by 25 basis points to 4.85%.

"Inflation remains elevated," it said. "This partly reflects higher fuel and other commodity prices affected by the conflict in the Middle East."

"AI-related investment is driving rapid growth in prices for technology-related goods, and inflation in many goods and services remains high."

The hike is the fifth this year, adding to cost-of-living pressures felt by households by increasing home mortgage payments, a politically potent topic in Australia.

It brings rates to their level seen since late 2008, at the height of the global financial crisis.

"There continue to be heightened uncertainties about the outlook for domestic economic activity and inflation," the RBA warned.

"Global oil supply disruptions are maintaining upward pressure on global and domestic energy prices and inflation. A period of prolonged uncertainty may also cause growth to be lower overseas and in Australia."