The Reserve Bank of Australia (RBA) has increased its cash rate by 25 basis points, reaching 4.6%. This decision, supported unanimously by the nine-member board, marks the fourth rate hike of 2026 and brings borrowing costs to their highest level since 2011. Policymakers indicated that further tightening remains possible if inflation does not stabilize.
The RBA cited rising global energy prices due to the Middle East conflict and increased demand for technology goods driven by artificial intelligence as key inflationary pressures. Headline inflation reached 4.6% in March before easing to 3.5% in July. However, underlying inflation, measured by the trimmed mean, rose to 3.6% in July, remaining above the bank's 2% to 3% target range.
The Australian economy is showing signs of deceleration, with GDP growth slowing to 2.1% in the year to the June quarter. Additionally, the national unemployment rate rose to 4.6% in August, while housing prices have declined in most capital cities. Market participants have adjusted their expectations, with swaps now pricing a 56% probability of another rate increase in November.
Australia's policy shift aligns with a broader trend among global central banks. In September, the US Federal Reserve raised rates to a range of 3.75% to 4%, the European Central Bank increased its deposit rate to 2.5%, and the Bank of Japan lifted its policy rate to 1.25%. The Bank of England maintained its rate at 3.75%, despite internal support for a hike.
