Reserve Bank of Australia Raises Cash Rate to 4.6%, Warns of Further Increases

The Reserve Bank of Australia (RBA) raised its cash rate by 25 basis points to 4.6%, marking the highest borrowing costs since 2011. This decision, supported unanimously by the nine-member board, is the fourth increase of 2026. Policymakers indicated that further tightening may occur if inflation does not decrease. The RBA noted that the ongoing Middle East conflict has contributed to rising global energy prices, which are now above previous forecasts. Higher fuel prices have affected the costs of other goods and services, adding to inflationary pressures. Australia's headline inflation reached 4.6% in March due to a 32.8% spike in fuel prices, but eased to 3.5% by July after a fuel excise cut. However, underlying inflation, measured by the trimmed mean, increased from 3.3% in March to 3.6% in July and has remained at that level since May, exceeding the RBA's target of 2% to 3%. The RBA emphasized its commitment to returning inflation to target, including the possibility of further rate hikes. This increase follows similar moves by other central banks, including the US Federal Reserve and the European Central Bank. Australia's economy is showing signs of slowing, with GDP growth at 2.1% for the year ending June, down from 2.5%. The jobless rate rose to 4.6% in August. Traders are now pricing in a 56% chance of another rate hike in November.

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