Australia’s Central Bank Hikes Rates Again

CNBC reported Tuesday that Australia’s Reserve Bank lifted its benchmark policy rate to 4.35%, matching its prior cycle peak, as the country battles stubbornly elevated consumer prices for the third consecutive meeting.

RBA Rate Hike Backed by Near-Unanimous Board

Eight of the nine board members voted to raise the cash rate from 4.1%. The lone dissenter preferred to hold. The outcome aligned with a Reuters poll of economists anticipating the move. The decision returns the RBA’s rate to its December 2024 high.

RBA Governor Michele Bullock and her board cited a material pickup in inflation during the second half of 2025. Ongoing conflict in the Middle East has driven fuel and commodity costs sharply higher, the bank said. Policymakers also warned of second-round effects, meaning elevated energy costs are beginning to filter into broader goods and services prices.

Middle East Conflict Complicates the Inflation Picture

The RBA explicitly flagged geopolitical uncertainty as a persistent upside risk to its forecasts. Consumer prices rose 4.09% year-on-year in the first quarter, the highest reading in more than two years. Monthly CPI data for March showed inflation climbing to 4.6%, the steepest print since Australia began publishing monthly figures last year.

The bank revised its near-term inflation forecasts upward. It now projects a 4.8% inflation rate for the June quarter, up from its February estimate of 4.2%. The full-year 2026 forecast was also lifted to 4%, versus 3.6% previously. The bank said inflation is expected to remain above its 2%-to-3% target band for an extended period.

Background: A Tightening Cycle That Has Only Accelerated

At its March meeting, the RBA had already telegraphed further increases were likely, though board members disagreed on the pace. Growth data has complicated the picture. Australia’s economy expanded 2.6% year-on-year in the fourth quarter of 2025, its fastest clip in two years and above consensus expectations.

That solid expansion gave the central bank confidence to continue tightening without triggering an immediate recession scare.

More Hikes Likely Before Year’s End

The RBA’s updated economic projections pencil in a policy rate of 4.7% by December 2026. That would represent 50 basis points of additional tightening from Tuesday’s level. Should the rate exceed 4.35%, it will be the highest since December 2011. Growth forecasts, meanwhile, were trimmed to 1.3% for 2026 from a prior estimate of 1.8%, acknowledging the drag that tighter financial conditions impose on households and businesses.

Markets will now watch closely for any softening in the bank’s language ahead of its next scheduled meeting.

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