The Reserve Bank of Australia has delivered a split decision to raise interest rates again. Photo: RBA.
The Reserve Bank of Australia has increased interest rates by 25 basis points, bringing the official cash rate to 4.1 per cent. It is the second rate rise this year, with the real possibility of more to come.
Up from 3.85 per cent in February, this rise was largely anticipated in light of the Middle East war. Some economists are predicting inflation in Australia could get as high as 5 per cent this year.
The central bank’s latest policy decision was not unanimous, but was made by a majority of the RBA Board.
Five members voted to increase the cash rate target by 25 basis points to 4.10 per cent; four members voted to leave the cash rate target unchanged at 3.85 per cent.
RBA Governor Michele Bullock described the board’s discussion on Tuesday (17 March) as “robust” and mostly about timing.
“Higher petrol prices will add to inflation, but they’re not the reason for today’s decision,” she said.
“If the Middle East conflicts get worse or are not resolved soon, higher fuel costs will push inflation here even higher.
“All members agreed that another rate increase was needed to address domestic inflationary pressures … It is hard, I understand that, but it is the only instrument we have, and it is important that we get inflation down.
“So we do need to keep our eye focused on that ball. We don’t want to have a recession, but if it’s hard to get inflation down, then, you know, we’re going to have to deal with that possibly … High inflation hurts absolutely everyone.”
Last week, the RBA’s deputy governor Andrew Hauser described high inflation in Australia as “toxic” and said the central bank was determined to bring it down.
In the board’s statement on Tuesday, the RBA said while inflation has fallen substantially since its peak in 2022, it picked up materially in the second half of 2025.
“Information since the February meeting suggests that some of the increase in inflation reflects greater capacity pressures,” it states.
“In addition, 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. As a result, the board judged that there is a material risk that inflation will remain above target for longer than previously anticipated.”
It is a blow to mortgage holders and will likely see average monthly repayments rise by almost $100.
Responding to the rate rise, Treasurer Jim Chalmers said the RBA’s decision was made in the midst of substantial global economic volatility and uncertainty.
“This obviously is not the decision that lots of Australians were hoping for,” Dr Chalmers said.
But the Treasurer said the Federal Government was taking into consideration the economic circumstances and pressures on people, and there would be savings for Australians in the May Budget.
“The main point from this decision is that we know we had an inflation challenge already in our economy,” he said.
“Developments in the Middle East are already making that challenge harder rather than easier.
“The impacts of what we’re seeing in that part of the world are already substantial, but we don’t know yet how enduring those very substantial economic pressures will be.
“It depends very heavily on how long the conflict in the Middle East continues.”
Shadow treasurer Tim Wilson described the rate hike as a “devastating day” for Australian households.
“And even more devastating, the only response the Albanese government seemed to have in the face of increased market prices, increased petrol prices and increased interest rates, is to see where they can add more taxes on Australian households,” he said.
Original Article published by Chris Johnson on Region Canberra.
