Reserve Bank of Australia (RBA) Governor Michelle Bullock spoke at a press conference at the bank’s headquarters in Sydney, Australia, on Tuesday, April 1, 2025.
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Australia’s central bank on Tuesday raised its policy rate by 25 basis points to 3.85% as inflation continues to rise, the Reserve Bank of Australia’s first rate hike since November 2023.
The Reserve Bank of Australia’s move followed data compiled by Reuters that showed inflation was at its highest level in six quarters, in line with economist expectations.
The board voted unanimously to raise the cash rate, marking a change in direction after three rate cuts in 2025.
“Private demand is growing faster than expected, capacity pressures are higher than previously assessed, and labor market conditions are moderately tight,” the central bank said in a statement, noting that inflationary pressures had increased “significantly” in the second half of last year.
“Inflation is expected to remain above the target band next year and then gradually decline,” said Sunny Nguyen, head of Australian economics at Moody’s Analytics.
Mr Nguyen said the global economic recovery despite US tariff hikes and the strength of exports from East Asian countries, fueled by the artificial intelligence boom, were a “double-edged sword” for the RBA.
This reduced the drag on domestic growth, he added, but also limited the “natural cooling of an already overheated economy”.
Australia’s annual consumer inflation rate rose by 3.8% in December, up slightly from 3.4% the previous month. Housing costs, led by electricity, were the biggest contributor to annual inflation over the past 12 months as households used up state electricity rebates.
RBA officials have repeatedly pushed back against expectations for rate cuts. Earlier this year, Reserve Bank of Australia Deputy Governor Andrew Hauser said the chances of a short-term interest rate cut were “probably very low” due to continued high inflation. The central bank has set an inflation target of 2.5%.
Governor Michelle Bullock expressed a similar position after the bank’s Dec. 9 rate decision, saying no rate cuts were planned for the time being.
Asked at the time whether the central bank would consider further rate hikes, Block said the central bank would evaluate economic indicators “on a meeting-by-meeting basis.”
“If inflation continues to persist and does not appear to be recovering towards the Board’s objectives, the Board may need to consider whether it is appropriate to leave interest rates where they are, or indeed to increase them at some point,” he said.
Australia’s economy grew at 2.1% in the third quarter, up from a revised 2% in the previous quarter and the fastest pace in nearly two years.
