Michele Bullock, governor of the Reserve Bank of Australia (RBA), attends a news conference at the bank’s head office in Sydney, Australia, on Tuesday, Dec. 9, 2025. Australia’s central bank kept its key interest rate unchanged for a third straight meeting in a widely expected decision, while reiterating that future moves will hinge on incoming economic data. Photographer: Brendon Thorne/Bloomberg via Getty Images
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Australia’s central bank on Tuesday raised its policy rate to 4.35%, its highest level since December 2024, amid elevated inflation.
The move by the Reserve Bank of Australia was in line with expectations in a Reuters poll of economists and marked the third consecutive rate increase.
Eight members of the RBA’s board voted for the rate hike, while one member voted to hold rates at 4.1%.
In its release, the RBA said that inflation had picked up materially in the second half of 2025, and that the conflict in the Middle East had led to sharply higher fuel and related commodity prices, further adding to inflation.
“As expected, developments in the Middle East are having an impact on inflation. Higher fuel prices are adding to inflation and there are indications that this is likely to have second-round effects on prices for goods and services more broadly,” it added.
The central bank said that inflation is likely to remain above its 2% to 3% target for some time and that the risks remain elevated.
The RBA also appeared to signal that more rate hikes were on the horizon, with its economic forecasts penciling in a 4.7% policy rate in December 2026, or 50 basis points more than was expected in early February.
Should the policy rate exceed 4.35%, it will be the highest since December 2011.
Inflation forecasts for the bank were also upgraded to 4.8% for the June quarter and 4% for the year ending 2026, up from the previous February forecast of 4.2% and 3.6%, respectively.
GDP growth for 2026 was also slashed sharply to 1.3%, down from 1.8% previously
Australia’s economy grew 2.6% from a year earlier in the fourth quarter, its fastest pace in two years, beating expectations.
The decision follows recent inflation data showing price pressures remain persistent. Consumer prices rose 4.09% in the first quarter from a year earlier, the highest in more than two years.
In March, inflation climbed to 4.6%, the highest since Australia began publishing monthly consumer price index data in 2025.
The RBA had signaled at its March meeting that further rate increases were likely, though policymakers differed on timing.
“Developments in the Middle East remain highly uncertain, but under a wide range of possible scenarios could add to global and domestic inflation,” the RBA said after its March meeting.
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