Australia's central bank raised its policy rate to 4.6% on Tuesday, the highest level in 15 years, as the country seeks to contain inflation triggered by conflict in the Middle East.
The 25 basis point increase in the cash rate matched the expectations of economists surveyed. The Reserve Bank of Australia (RBA) has now raised rates four times this year, for a cumulative 100 basis points, as inflation remains stubborn.
In its statement, the RBA said some of the upside risks it flagged at its August meeting are now materializing. The central bank wrote that "the conflict in the Middle East has widened, and global energy prices are now far higher than previously assumed," adding that AI-related demand is driving rapid increases in the prices of technology goods.
The RBA also said it will "continue to do what it considers necessary" to contain inflation, including further increases in the policy rate. Following the policy decision, the S&P/ASX 200 index and the Australian dollar were both little changed.
In 2026, Australia's inflation rate has remained above its 2%-3% target range and hit a high of 4.6% in March. The country's latest published inflation rate was 3.5% for July, exceeding expectations. August data is due on Wednesday.
A report from Bank of America last week said inflation is accelerating rather than converging toward the target level. "The July CPI is the clearest evidence of this shift and extends the trend of rising core inflation in recent months," Bank of America said, noting there is also evidence of second-round effects from energy costs, further reinforcing the risk that inflation is becoming entrenched.
"The conflict in the Middle East remains unresolved, and there is a scenario in which inflation is higher than forecast and economic activity is lower than forecast," the RBA wrote. The central bank had previously warned that the country's economic growth would slow as interest rates rise. Australia's economy grew 2.1% in the second quarter, down from 2.5% in the first three months of the year.