Australia Delivers Rate Hike to 4.60% as RBA Warns of More to Come

The Reserve Bank of Australia (RBA) increased its cash rate by 25 basis points, bringing it to 4.60%. Borrowing costs have now climbed to levels not seen since 2011.

The decision received unanimous support from all nine board members, marking the fourth rate increase in 2026. Policymakers have left the door open for additional tightening if inflation does not ease.

Fuel Costs Spill Beyond the Pump

The RBA stated that the conflict in the Middle East has expanded, lifting global energy prices well above the projections used in its August forecasts.

Demand linked to artificial intelligence was also highlighted by the bank as a factor pushing up global prices for technology products.

“Higher fuel prices have partially been passed through to prices of other goods and services. This inflation impulse is in addition to the effect of capacity pressures in the economy,” the statement read.

Fuel has caused significant swings in Australia's headline inflation throughout this year. Headline inflation reached 4.6% in March following a 32.8% monthly jump in fuel prices, according to data from the Australian Bureau of Statistics (ABS). By July, the rate had softened to 3.5%, aided by a halving of the fuel excise tax in April.

Underlying inflation, however, moved in the opposite direction. The trimmed mean—which excludes the most extreme price changes—rose from 3.3% in March to 3.6% in July.

That measure has remained at 3.6% since May, comfortably above the RBA's target range of 2% to 3%.

“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 bank added.

The RBA Joins a September Wave of Rate Hikes

The Australian move follows rate increases from three other major central banks this month. The US Federal Reserve raised its target range by 25 basis points to 3.75% to 4% on September 16.

That decision represented the Fed's first hike since 2023. Earlier, the European Central Bank lifted its deposit rate to 2.5%.

On September 18, the Bank of Japan followed, raising its policy rate to 1.25%, the highest level since 1995. In contrast, the Bank of England held rates at 3.75% on September 17, though three of its nine policymakers voted for an increase.

Domestically, the higher rate arrives as the economy is already decelerating. GDP grew 2.1% year-on-year in the June quarter, down from 2.5% in the March quarter.

The RBA also noted that housing prices have declined in most capital cities. Australia's unemployment rate rose to 4.6% in August, as reported by Bloomberg.

Traders have increased their expectations for additional tightening. Swaps now indicate a 56% probability of a rate hike in November, up from roughly 50% before the decision.

The ABS will release August inflation data on Wednesday. September figures, including quarterly readings, are due on October 28, ahead of the RBA's November meeting.