Australia’s central bank on Tuesday raised its policy rate to 4.35%, on par with its peak in December 2024, as inflation remains high.
The Reserve Bank of Australia’s move is in line with expectations from a Reuters survey of economists and is the third consecutive interest rate hike.
Eight board members voted in favor of the rate hike, and one voted to keep the rate unchanged at 4.1%.
Inflation accelerated significantly in the second half of 2025, the RBA said in a statement, as conflicts in the Middle East drove up fuel and commodity prices.
“As expected, developments in the Middle East are having an impact on inflation. There are indications that higher fuel prices are accelerating inflation, and that this is likely to have a secondary impact on the prices of a wider range of goods and services.”
The central bank said risks remained high, with inflation likely to remain above its 2% to 3% target for some time.
The RBA also appears to be hinting that further rate hikes are on the horizon, with its economic forecast pegging the policy rate at 4.7% in December 2026, 50 basis points higher than expected in early February.
If the policy rate exceeds 4.35%, it will be the highest level since December 2011.
The bank’s inflation forecast was also raised to 4.8% for the June quarter and 4% for the year to 2026, up from its previous forecast in February (4.2% and 3.6%, respectively).
The economic growth rate for 2026 has been revised downward from 1.8% to 1.3%.
ANZ Bank said in a post-meeting note that the RBA’s tone was “more hawkish than we expected”, adding there was less room for a clear break in June than expected.
“This does not necessarily mean that further rate hikes are a foregone conclusion, but rather indicates that it is preferable for the Board to keep its options open,” the bank said.
Australia’s economy grew 2.6% year-on-year in the fourth quarter, the fastest pace in two years and faster than expected.
The decision follows recent inflation data showing that price pressures remain strong. Consumer prices rose 4.09% year-on-year in the first quarter, the highest level in two years.
Inflation rose to 4.6% in March, the highest since Australia began publishing monthly consumer price index data in 2025.
The RBA had hinted at the possibility of further rate hikes at its March meeting, but policymakers differed on the timing.
“While developments in the Middle East remain highly uncertain, global and domestic inflation could rise further under a wide range of possible scenarios,” the RBA said after its March meeting.
The RBA plans to raise interest rates to 4.60% in the third quarter of this year, said Abhijit Surya, senior Asia Pacific economist at Capital Economics.
“We still think further policy tightening is possible, given that upcoming inflation data may be higher than expected by the RBA,” Surya added.
