The Reserve Bank of Australia has lifted its benchmark interest rate by 25 basis points to 3.85%, marking the central bank’s first increase since late 2023. The move comes in response to persistent inflationary pressures and positions Australia among a small group of major economies currently tightening monetary policy.
The policy adjustment, announced after the RBA’s February meeting, aligns with expectations among economists and follows recent data indicating inflation reached its highest point in a year and a half. The central bank’s rate hike was unanimously supported, marking the first increase since November 2023 and coming six months after its most recent rate cut in August.
Australia’s consumer prices rose at an annual rate of 3.8% in December, up from 3.4% in November. Rising housing expenses, particularly higher electricity costs, were the primary drivers of inflation over the past year, as government utility subsidies for households diminished.
Following this decision, Australia now joins Japan as the only advanced economies currently tightening monetary policy. By contrast, investors anticipate interest rate reductions in the U.S., UK, and Canada, while the European Central Bank is seen as maintaining a steady stance.
At the press conference, RBA Governor Michele Bullock refrained from indicating any definitive plans for future increases. However, the central bank’s updated economic projections assume further policy tightening will be needed to bring inflation back within its 2% to 3% target range.
Investor expectations currently reflect the likelihood of a further 40 basis points of rate increases by the end of the year.
