Australia Hikes Key Policy Rate For Third Time

(RTTNews) - The Reserve Bank of Australia raised its key interest rate by a quarter basis point for the third straight meeting as inflation is expected to remain above the target as the war in the Middle East pushed up fuel prices.

The RBA policy board, led by Governor Michele Bullock, decided to lift the cash rate target by 25 basis points to 4.35 percent in a split vote on Tuesday, in line with economists' expectations.

The latest decision followed similar quarter-point increases in February and March. The current rate is the highest since December 2024.

At the meeting, eight board members voted in favor of the hike, while one policymaker voted to maintain the rate at 4.10 percent.

"…the Board assessed that inflation is likely to remain above target for some time and that the risks remain tilted to the upside, including to inflation expectations," the RBA said in a statement.

"It was therefore judged appropriate to increase the cash rate target," the central bank said.

The board observed that 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.

This is in addition to the high inflation seen around at the start of the year, reflecting capacity pressures in the economy, the board noted.

Policymakers said a longer and a more severe conflict could put further upward pressure on global energy prices and this would push up near-term inflation.

The central bank sharply raised the inflation forecasts and now expects headline inflation to peak at 4.8 percent in mid-2026, and underlying inflation to remain above 3 percent until mid-2027.

Average growth forecasts were also trimmed. The projection for this year was lowered to 1.9 percent from 2.1 percent and that for next year was cut to 1.3 percent from 1.6 percent.

"Looking ahead, the RBA is signaling that policy is now restrictive, but not necessarily on a one-way tightening path," ING economist Deepali Bhargava said.

Th economist observed that the marked downgrade to growth and the rising unemployment track suggest the RBA is becoming more alert to downside risks.

"While the forecasts still bake in a higher peak cash rate of 4.7 percent by end-2026, the tone of the communication points to a willingness to pause and assess," Bhargava said. "For now, that argues for the RBA staying on hold in June unless inflation data materially surprises to the upside."