In response to rising energy costs stemming from escalating conflict in Iran, which may intensify price pressures, the Reserve Bank of Australia raised interest rates for the second consecutive meeting on Tuesday, intensifying efforts to combat persistent inflation.
The central bank increased the cash rate from 3.85% to 4.1%, marking the first instance of back-to-back rate hikes since mid-2023. According to the policy statement, the nine-member policy committee voted five to four in favor of tightening monetary policy. Governor Michele Bullock is scheduled to hold a press conference at 15:30 Sydney time.
"The situation in the Middle East remains highly uncertain and, under various scenarios, could exacerbate both global and domestic inflation," the statement noted. "Given this, the committee believes inflation may remain above target for some time, with risks further skewed to the upside, including inflation expectations."
Following the policy announcement, Australian government bonds extended their gains while the Australian dollar declined. The yield on 3-year Australian government bonds fell 8 basis points to 4.51%, compared to 4.56% prior to the decision. The Australian dollar dropped 0.1% against the U.S. dollar to 0.7065, down from 0.7083 before the announcement.
The Reserve Bank of Australia's meeting is the first among eight major central bank policy decisions this week, occurring against the backdrop of escalating Middle East conflicts. The Federal Reserve is set to announce its interest rate decision on Wednesday, followed by the Bank of Japan on Thursday.
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