The Reserve Bank of Australia raised interest rates Tuesday to their highest level in 15 years as policymakers responded to persistent inflation, elevated energy prices and stronger-than-expected domestic price pressures.
The RBA’s Monetary Policy Board unanimously increased the cash-rate target by 25 basis points to 4.60% from 4.35%.
It was Australia’s fourth rate increase of 2026, bringing cumulative tightening this year to one percentage point.
The central bank said some of the inflation risks it identified earlier in the year are now materializing.
Global energy prices remain substantially above assumptions contained in the RBA’s August forecasts as the Middle East conflict continues to disrupt oil supplies. The bank also cited rapid increases in prices for technology-related goods associated with global AI investment and continued pressure on Australia’s domestic productive capacity.
Australian inflation has also been stronger than policymakers expected at their previous meeting.
The RBA said businesses are reporting rising costs and are either increasing prices or considering doing so, while short-term inflation expectations remain elevated.
At the same time, Australia’s economy is showing signs of slowing.
Consumer-spending growth is easing, housing prices have fallen across most major cities and new housing lending has declined noticeably. Labor-market conditions have softened broadly in line with expectations.
That combination leaves the RBA confronting the same problem increasingly facing central banks elsewhere: economic momentum is weakening while inflation remains too high to permit easier monetary policy.
The Board said higher fuel prices are beginning to pass through into prices for other goods and services.
Policymakers therefore concluded that additional tightening was necessary to prevent elevated inflation from becoming embedded.
The RBA stopped short of committing to another increase.
Instead, it said it would continue assessing incoming data and could raise the cash rate again if needed to return inflation sustainably toward its 2%-3% target.
For Australian markets, the next question is whether the cumulative tightening already delivered begins slowing demand quickly enough to reduce inflation without producing a more severe economic downturn.
