Australia’s Central Bank Raises Interest Rate by 25 Basis Points

The Reserve Bank of Australia (RBA) raised its benchmark interest rate by 25 basis points to 4.1 percent on Tuesday, following a closely divided decision by its Monetary Policy Committee.

In a statement, the central bank said the decision was supported by a majority of five members, while four voted to keep the rate unchanged at 3.85 percent.

The RBA noted that while inflation has declined markedly from its 2022 peak, it is expected to pick up sharply in the second half of 2025, partly reflecting mounting capacity constraints in the economy.

The bank also pointed to rising geopolitical risks, noting that the ongoing conflict in the Middle East has driven a sharp increase in fuel prices, which could add to inflationary pressures if sustained. Short-term inflation expectations have already moved higher.

The Monetary Policy Committee indicated that inflation is likely to remain above target for an extended period, with risks tilted to the upside.

It added that rising inflation expectations were a key factor underpinning the decision to tighten monetary policy at this stage.