RBA raises rates and remains on track for further tightening on growing inflation threats

The Reserve Bank of Australia raised interest rates for a second straight month, with decision being driven by growing risk of inflation amid escalating war in the Middle East and anticipated oil shock.

The central bank raised its main cash rate by 25 basis points from 3.85% to 4.1% (the highest since May, after rates peaked at 4.35% early last year) with today’s hike undoing two of the three cuts it made in 2025.

The RBA was the first to release its policy decision this week, in which eight major central banks will hold their monetary policy meetings, with most of them expected to stay on hold but to remain extra cautious over further impacts from the crisis.

Governor Michele Bullock, in her post-meeting press conference, said that the policymakers were split more on timing rather than on direction, as prevailing view was in favor of rate hike and they argued whether to act or wait more economic data before taking an action.

Key factors that contributed to today’s decision were elevated inflation, still tight labor market, record low unemployment and economic growth at the fastest pace in nearly three years and well above central bank’s estimation.

The RBA is likely to remain on the path of further policy tightening with around 40% bets for a rate hike in the May policy meeting and increase to 4.35% by August being fully priced in.

The notion is supported by policymakers’ expectations that inflation will rise rise to 4.2% by mid-year, as Middle East crisis continues to escalate and oil prices holding above $100per barrel.