Australia’s central bank increased its benchmark interest rate to 4.6% on Tuesday, marking the highest level in 15 years as officials intensify efforts to curb persistent inflation.
The 25-basis-point hike aligned with market expectations from economists surveyed by Reuters. It represents the fourth consecutive increase this year, bringing the total cumulative rise to 100 basis points.
Inflation has consistently exceeded the Reserve Bank of Australia’s target range of 2% to 3% throughout 2026. After peaking at 4.6% in March, the annual rate eased to 3.5% in July, slightly outperforming forecasts. The next inflation reading for August is scheduled for release on Wednesday.
During its previous monetary policy meeting, the RBA stated that “inflation is still too high,” citing domestic price pressures and elevated energy costs linked to the ongoing war involving Iran.
A recent analysis from Bank of America highlighted concerns that inflation may be accelerating rather than returning to target levels. The bank pointed to July’s Consumer Price Index data as evidence of a shift, noting a pattern of rising core inflation over recent months.
The analysis further suggested second-round effects from energy costs are reinforcing the risk that inflation could become entrenched within the economy.
While maintaining its inflation-fighting stance, the RBA has acknowledged the potential for economic slowdown as borrowing costs rise. Australia’s economy expanded at an annualized rate of 2.1% in the second quarter, decelerating from the 2.5% growth recorded in the first quarter.
Finally some action. Stubborn inflation needs stubborn policy, but I worry 2.1% growth is the tip of the iceberg for a slowdown.
Are they sure this isn’t a mistake? Core inflation seems to be accelerating according to Bank of America, which complicates things.
This is going to hit mortgage holders really hard. Hope the central bank is watching the housing market collapse risk closely.