Australia’s central bank raised benchmark interest rates for the second time in a row on Tuesday, taking them to their highest level since April 2025 at 4.1%, amid stagnant inflation.
The 25 basis point increase was in line with the expectations of analysts polled by Reuters, and comes as inflation in Australia remains above the central bank’s 3% ceiling and the war in the Middle East risks further price rises.
“While inflation has fallen significantly from its peak in 2022, it has picked up significantly in the second half of 2025,” the Reserve Bank of Australia said.
While developments in the Middle East remain highly uncertain, the RBA also said they are likely to add to global and domestic inflation. The bank added that inflation is likely to remain above target “for some time” and that risks have increased further, justifying an increase in interest rates.
Speaking to CNBC’s “Squawk Box Asia,” Paul Bloxham, chief economist for Australia, New Zealand and global commodities at HSBC, said domestic factors were a key reason for the move, SEEbiz reports.
“The output gap is positive, inflation is currently too high and the unemployment rate is still quite low,” Bloxham said, noting that Australia has one of the tightest labor markets in the world and inflation has remained above target.
He said that because the war with Iran would continue to fuel inflation in Australia, the RBA decided there was no “room to manoeuvre” to wait and see how global events unfolded.
