Australia’s Central Bank Raises Rates Again and Flags Prolonged Inflation Fight
CNBC reported Tuesday that Australia’s central bank delivered its third consecutive rate increase, lifting its benchmark rate to 4.35% and signalling the tightening cycle is far from over.
RBA Matches Its Prior Peak With Near-Unanimous Vote
The Reserve Bank of Australia’s decision matched the rate peak last seen in December 2024. Eight board members backed the move while one voted to keep rates at 4.1%. The outcome aligned with forecasts from a Reuters survey of economists. RBA Governor Michele Bullock and her colleagues tied the decision directly to rising price pressures linked to the ongoing Middle East conflict. Higher fuel costs have already filtered through to broader goods and services, the board warned. The RBA now projects its policy rate reaching 4.7% by December 2026. That figure sits 50 basis points above the bank’s own February projection. Should the rate surpass 4.35%, it would mark the highest level since late 2011.
Background: Inflation Has Been Building Since Mid-2025
Price pressures in Australia began intensifying in the second half of last year. Consumer prices rose more than 4% in the year to the first quarter of 2026, the steepest reading in over two years. March alone saw inflation hit 4.6%, the highest since Australia began releasing monthly CPI figures. The RBA had already telegraphed further hikes at its March meeting, though board members disagreed on the pace. The bank has now upgraded its inflation forecasts to 4.8% for the June quarter and 4% for full-year 2026, both materially above February estimates. Economic growth projections for 2026 were trimmed to 1.3% from 1.8%, reflecting the drag from tighter policy.
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Analysts See More Tightening Ahead
ANZ Bank described the RBA’s tone as more hawkish than expected in a note published after the decision. The bank said no clear signal for a June pause emerged, though it stopped short of calling another hike inevitable. Analysts at Capital Economics forecast the RBA will raise rates to 4.6% in the third quarter. Senior APAC Economist Abhijit Surya noted that incoming inflation data could surprise to the upside of the RBA’s own projections. Australia’s economy expanded 2.6% year-on-year in the fourth quarter of 2025, its fastest pace in two years, giving policymakers the headroom to keep tightening without triggering a sharp growth slowdown.
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