Source : the age
The Reserve Bank has lifted official interest rates a quarter percentage point in a decision that will add about $100 a month to the repayments on a $600,000 mortgage.
Following its two-day meeting, the bank’s monetary policy committee, in a split decision, pushed the cash rate to 4.1 per cent. It was a follow-up to its February decision to start increasing interest rates to deal with growing inflation pressures across the economy.
Five members of the RBA board backed the move, while four were opposed.
In a statement announcing the move, the bank said the risks to higher inflation had climbed.
“The conflict in the Middle East has resulted in sharply higher fuel prices, which, if sustained, will add to inflation. Short-term measures of inflation expectations have already risen,” it said.
“As a result, the board judged that there is a material risk that inflation will remain above target for longer than previously anticipated.”
The split nature of the board affected the currency market. The Australian dollar, which would normally go up against its US counterpart, actually fell slightly to sit at US70.61¢.
In its statement, the bank said the uncertainty caused by the events in the Middle East was a key factor for further rate changes.
“Globally, the conflict in the Middle East poses substantial risks in both directions,” it said.
“A longer or more severe conflict could put further upward pressure on global energy prices; this will push up near-term inflation and could also increase inflation further out if it impairs supply capacity or price rises get built into longer-term inflation expectations.
“Higher prices and prolonged uncertainty may cause growth to be lower in Australia’s major trading partners and also in Australia.”
The statement also confirmed that the bank was surprised by the recent December quarter national accounts which showed a lift in economic growth largely driven by private investment.
The same national accounts showed a drop in unit labour costs, a key concern for the bank.
“More recently, the unemployment rate has been a little lower than expected and measures of labour underutilisation remain at low rates,” it said.
“Activity and prices in the housing market grew strongly over the past year, although housing price growth moderated somewhat at the start of 2026.”
The bank said while inflation had lifted in part due to “temporary factors”, it was concerned that ongoing tightness in the jobs market could mean inflation could endure longer.
US President Donald Trump may determine how much interest rate pain Australians will have to endure.
Callam Pickering, Asia-Pacific economist for global job website Indeed, said the Reserve had little option other than to push the cash rate up to 4.1 per cent given the broad scope of inflation across the economy.
But he said the uncertainty around oil prices caused by the war in Iran would weigh on the RBA.
“It’s unlikely that the RBA is done hiking rates, however, given the high level of geopolitical uncertainty stranger things have happened. A lot will unfortunately depend on Donald Trump,” he said.
“We currently expect the RBA to hike once again when they meet in early May.”
More to come
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Shane Wright is a senior economics correspondent for The Age and The Sydney Morning Herald.Connect via X or email.
