RBA raises interest rates by 25 bps; sees more hikes as inflationary risks mount

The Reserve Bank of Australia (RBA) increased interest rates by 25 basis points to 4.60% on Tuesday, reaching a near 15-year high. This decision was made due to growing concerns over inflationary risks driven by high energy prices and limited domestic capacity. The RBA raised its cash rate target to 4.60%, its highest level since October 2011.

All members of the RBA’s rate-setting board unanimously agreed on this decision, expressing worry over the increasingly stubborn inflation. This was the fourth rate hike in 2026, following an earlier tightening cycle initiated earlier in the year. The 25 bps increase was anticipated following several hawkish comments from RBA members, as recent Australian inflation data had exceeded the central bank’s target range of 2% to 3%.

The bank stated it would continue taking necessary actions, including further rate hikes if required, to bring inflation back to its target sustainably. The RBA also noted some inflationary risks materializing, with factors such as geopolitical conflicts in the Middle East driving up global energy prices and AI-driven demand for technology contributing to inflation.

Additionally, the RBA highlighted that tight domestic capacity had exacerbated the situation, with local demand needing to decline due to potential economic slowdown and reduced employment.