The Reserve Bank of Australia (RBA) raised its cash rate by 25 basis points to 4.6%. The move pushes borrowing costs to their highest level since 2011.
The nine-member board backed the decision unanimously, delivering its fourth increase of 2026. Policymakers also kept further tightening on the table if inflation fails to cool.
Fuel Costs Spill Beyond the Pump
In its statement, the RBA said the Middle East conflict has widened. As a result, global energy prices now sit well above the levels assumed in its August forecasts.
The bank also flagged AI-related demand, which it said is pushing up global prices for technology goods.
“Higher fuel prices have partially been passed through to prices of other goods and services. This inflation impulse is in addition to the effect of capacity pressures in the economy,” the statement read.
Fuel has driven substantial swings in Australia’s headline inflation this year. Headline inflation hit 4.6% in March after fuel prices jumped 32.8% in a single month, Australian Bureau of Statistics (ABS) data shows. The rate then eased to 3.5% by July, helped by a halving of the fuel excise in April.
However, underlying inflation moved the other way. The trimmed mean, which strips out the most extreme price changes, rose from 3.3% in March to 3.6% in July.
That gauge has now held at 3.6% since May, well above the RBA’s 2% to 3% target band.
“The Board will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed,” the bank added.
The RBA Joins a September Wave of Rate Hikes
Australia’s move follows rate hikes from three other major central banks this month. The US Federal Reserve (Fed) lifted its target range by 25 basis points to 3.75% to 4% on September 16.
That decision marked the Fed’s first hike since 2023. Days earlier, the European Central Bank (ECB) raised its deposit rate to 2.5%.
The Bank of Japan followed on September 18, taking its policy rate to 1.25%, the highest since 1995. In contrast, the Bank of England held at 3.75% on September 17. Still, 3 of its 9 policymakers voted for a hike.
At home, the higher rate lands on an economy that is already slowing. GDP grew 2.1% in the year to the June quarter, down from 2.5% in the March quarter.
Meanwhile, the RBA noted that housing prices have fallen in most capital cities. Australia’s jobless rate also climbed to 4.6% in August, Bloomberg reported.
Traders have raised bets on further tightening. Swaps now price a 56% chance of a November hike. Before the decision, those odds sat near 50%.
The ABS releases August inflation data on Wednesday. It will then publish September figures, including quarterly readings, on October 28, ahead of the RBA’s November meeting.
Subscribe to our YouTube channel to watch leaders and journalists provide expert insights
