The Reserve Bank of Australia has spiked the key policy rate to 4.35%, going back to the December 2024 peak, coming in line with the expectations for the economists. The eight members of the board voted for the hike, while one voted to hold rates at 4.1%, coming as its third consecutive interest-rate increase. The RBA also said inflation had picked up materially in the second half of 2025, with conflict in the Middle East pushing up fuel and commodity prices.
Notably, the central bank of Australia has raised the rate following increases in February and March, and has now reversed all the cuts it announced in 2025.
In its statement, the RBA said inflation had picked up materially in the second half of 2025, with conflict in the Middle East pushing up fuel and commodity prices. “As expected, developments in the Middle East are having an impact on inflation. 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,” it added.
Announcing the decision, Reserve Bank governor Michele Bullock said the war in the Middle East has driven up inflation that was already too high in Australia.
“We are all feeling poorer Inflation hurts all Australians because its eats away at the purchasing powers of our money and Australians are poorer because of this shock to energy prices," Bullock said.
Australian central bank has also upgraded inflation forecast to 4.8% for the June quarter and 4% for the year ending 2026, up from the previous February forecast of 4.2% and 3.6%, respectively.
Australia’s economy grew 2.6% from a year earlier in the fourth quarter, its fastest pace in two years.
The United States (US) Federal Reserve has held its target federal funds interest rate in the 3.50%-3.75% range at the April meeting, a widely anticipated outcome.
US Fed Chairman Jerome Powell signalled that he would remain on the Board of Governors for an indefinite period after his term as chair ends on May 15. He said he is waiting until an investigation into the Federal Reserve’s renovations is well and truly over with transparency. He can remain as a governor until 2028.
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