Widely expected decision is fourth increase to interest rate this year and will be blow to mortgage holders across Australia
Follow our Australia news live blog for latest updates
Get our breaking news email, free app or daily news podcast
The Reserve Bank of Australia has lifted its key interest rate to 4.6%, its highest level since 2011, while warning of further hikes.
The widely expected fourth increase to the cash rate this year will add to repayment costs for millions of mortgage holders across the country. Before Tuesday’s meeting, it sat at 4.35%.
In a statement accompanying the RBA’s rate setting board’s unanimous decision, it warned its fears about inflation were beginning to be realised and it was ready to lift interest rates again.
It highlighted a broadening Middle East conflict and strong AI-related demand for pushing up prices globally. Locally, inflation was higher than the RBA expected, and businesses were either lifting prices or looking to do so.
The board said higher fuel costs were affecting the prices of other goods and services, and it was possible the ongoing US war on Iran could push inflation higher and drag global economic activity further down.
The RBA had previously lifted interest rates three times this year. The board said those hikes appeared to be slowing the economy, but that another was needed to bring inflation down “in a reasonable period”.
“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 statement read.
Data to be released on Wednesday is expected to show underlying inflation rising at an annual pace of 3.6% for the third month running in August, well ahead of the RBA’s target range of 2% to 3%.
The treasurer, Jim Chalmers, has said the US war on Iran – not government spending – was to blame for inflation.
“When you see what’s happening with global oil prices, when you see what’s happening with the re-escalation of the war in the Middle East, obviously, factually, that is one of the big drivers of that inflation,” Chalmers told Channel Seven on Tuesday morning.
Before the decision, markets were predicting a further hike by February and more than a 50% chance of another by mid-2027.
Bets on higher rates gained confidence after the decision, with the Australian dollar rising from 70.11 US cents to 70.17. Bond yields rose and the sharemarket benchmark, the S&P/ASX200, slipped from 8,697 to 8,671 points.
The RBA governor, Michele Bullock, will speak at 3.30pm AEST to explain the decision.
