Australia's Central Bank Raises Interest Rate to 4.6%, Highest Since 2011

The Reserve Bank of Australia (RBA) unanimously voted on Tuesday to raise its benchmark cash rate from 4.35% to 4.6%, the highest level since 2011. It was the fourth increase this year and had been widely anticipated by markets.

In its statement, the RBA said fears about inflation were beginning to materialize and that it stood ready to raise rates further if necessary. The bank pointed to a broadening conflict in the Middle East and strong AI-related demand as global factors pushing up prices. Domestically, inflation had run hotter than expected, with many businesses already raising prices or planning to.

The board noted that higher fuel costs were feeding through into the prices of other goods and services, and warned that the ongoing US war on Iran could push inflation even higher while further dragging down global economic activity.

Three previous hikes

The RBA had already raised rates three times this year. The board acknowledged those increases appeared to be slowing the economy, but judged another hike was needed to bring inflation back down within a reasonable timeframe. It said it would continue doing whatever necessary to sustainably return inflation to target, including further rate increases if needed.

Data due Wednesday is expected to show underlying inflation running at an annual pace of 3.6% for a third straight month in August, well above the RBA's 2–3% target range.

Treasurer Jim Chalmers said the US war on Iran, not government spending, was to blame for the inflation pressure, pointing to global oil price movements and the escalating regional conflict.

Before the decision, markets had priced in a further hike by February and more than a 50% chance of another by mid-2027. Following the announcement, the Australian dollar strengthened, bond yields rose, and the S&P/ASX200 share index edged lower.