Australia’s central bank has lifted its benchmark interest rate to 4.35%, underscoring a continued push to rein in inflation that policymakers say will remain above target for some time.
The increase by the Reserve Bank of Australia (RBA) was in line with market expectations and marks the third straight rate hike, reflecting growing concern over persistent price pressures.
Board voting showed strong support for the move, with eight members backing the hike and one opting to keep the rate unchanged at 4.1%.
In its policy statement, the RBA pointed to a renewed pickup in inflation in the second half of 2025, driven in part by rising energy and commodity costs linked to tensions in the Middle East.
“Developments in the Middle East are having an impact on inflation,” the bank said, noting that higher fuel prices are feeding into broader costs for goods and services.
The central bank warned that inflation will likely stay above its 2%–3% target band for an extended period, with risks still skewed to the upside.
It also signalled that further tightening may be required, projecting that the policy rate could rise to 4.7% by December 2026. If reached, that level would mark the highest interest rate environment in Australia since 2011.
Updated forecasts show inflation hitting 4.8% in the June quarter and averaging 4% across 2026—both upward revisions from earlier estimates. At the same time, the growth outlook has weakened, with the economy now expected to expand by 1.3% in 2026, down from a prior forecast of 1.8%.
Analysts at ANZ Bank said the RBA’s latest communication suggests a more hawkish stance than previously anticipated, with policymakers showing little inclination to pause rate increases in the near term.
While that does not guarantee another hike at the next meeting, ANZ noted that the central bank is keeping its options open as it monitors incoming data.
Recent figures indicate that Australia’s economy remains relatively resilient despite tighter financial conditions. Gross domestic product grew by 2.6% year-on-year in the fourth quarter, its fastest pace in two years.
However, inflation continues to weigh on the outlook. Consumer prices rose 4.09% in the first quarter from a year earlier, the highest rate in more than two years. Monthly data also showed inflation climbing to 4.6% in March, the highest since the introduction of monthly CPI reporting in 2025.
The latest decision follows earlier guidance from the RBA that additional rate increases could be necessary, even as policymakers remain divided over the pace and timing of further tightening.
“Developments in the Middle East remain highly uncertain,” the bank said, warning that evolving geopolitical conditions could further drive both global and domestic inflation.
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