The Reserve Bank has increased interest rates amid a global energy shock that threatens to push Australian inflation towards 5%.
The hike takes the RBA’s cash rate target from 3.85% to 4.1%, back to where it was in February 2025, wiping out the relief offered by two cuts last year.
Household budgets, already under pressure after a rate rise in February and soaring petrol prices, will face higher mortgage costs.
Someone with a $600,000, 25-year mortgage will see their weekly repayments rise by another $91 a month, once their bank passes the hike on.
The broadening Middle East conflict has triggered fears of fuel shortages and is adding to price pressures around the world, forcing global central banks to prepare for higher interest rates.
Australia’s Reserve Bank had been the only one expected to hike so soon, with central banks in the US, UK, European Union, Japan, Canada, Switzerland and Sweden all expected to leave rates on hold this week.
Even before the US struck Iran, Australian inflation had already been elevated at 3.8% – well above the bank’s 2-3% target.
The economy has been growing at its fastest pace in almost three years and unemployment has fallen since September.
The week before the decision, predictions of a rate hike firmed when the central bank’s deputy governor, Andrew Hauser, said data had “confirmed even more decisively … that our economy currently has limited spare capacity”.
Some economists, though, had warned the RBA needed to leave interest rates on hold for fear of a downturn in consumer spending.
Household spending had already slowed and soaring petrol prices would restrict spending further, while potentially giving inflation only a temporary boost, AMP economist Shane Oliver wrote ahead of the meeting.
“It makes sense to wait for at least some of the dust to settle from the Iran war, because it could end in a month, making any boost to inflation from higher petrol prices a short term blip,” Oliver said.
Households are the gloomiest they have been since the onset of the Covid-19 pandemic in early 2020, ANZ’s weekly consumer sentiment survey revealed on Tuesday morning.
International conflict, petrol prices and rate hike fears had severely damaged Australians’ confidence in the economy, according to Sophia Angala, an ANZ economist.
The RBA governor, Michele Bullock, will explain the decision at 3.30pm AEDT in Sydney.
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