Australia’s central bank has raised its policy rate by 25 basis points to 4.6%, the highest level in 15 years, as it moves to contain persistent inflation pressures worsened by the Middle East conflict.
The Reserve Bank of Australia’s latest increase was in line with expectations from economists polled by Reuters and marks the fourth rate hike this year, taking the total increase to 100 basis points.
In its statement, the RBA said some of the upside risks identified at its August meeting were now materialising, including higher global energy prices linked to the widening Middle East conflict.
“The conflict in the Middle East has broadened and global energy prices are now much higher than had been assumed,” the central bank said, adding that strong artificial intelligence-related demand was contributing to rapid price increases for technology-related goods.
The RBA said it would “continue to do what it considers necessary” to contain inflation, including raising the policy rate further if required.
Australia’s inflation has remained above the central bank’s 2% to 3% target band in 2026, reaching 4.6% in March before easing to 3.5% in July, which was above economists’ expectations. August inflation data is due on Wednesday.
Bank of America said last week that inflation appeared to be accelerating rather than moving back towards the RBA’s target, citing July’s consumer price index as evidence of rising underlying inflation in recent months.
The bank also pointed to signs that higher energy costs were generating second-round effects, increasing the risk that inflation could become entrenched.
“The Middle East conflict remains unresolved, and there are scenarios where inflation is higher and activity lower than forecast,” the RBA said.
The rate increase comes as the Australian economy shows signs of slowing under tighter monetary conditions. Economic growth eased to 2.1% in the second quarter from 2.5% in the first three months of the year.
Following the RBA’s decision, the S&P/ASX 200 and the Australian dollar were broadly flat.
Boluwatife Enome
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