SYDNEY—While President Trump presses the Federal Reserve to reduce interest rates and a new Fed Chair nominee who could lead efforts to do just that is awaiting his Senate hearing, Australia’s central bank has just opted to increase interest-rates, its first such increase since late 2023.
The Reserve Bank of Australia cited a worsening inflation outlook and a broad upswing in the economy over recent quarters in opting to increase rates.
“Economists think the move could be the start of a concerted tightening cycle as inflation proves to be hard to stamp out in Australia,” the Wall Street Journal reported.
The Reserve Bank of Australia raised the official cash rate by 25 basis points to 3.85% on Tuesday, taking back the cut delivered as recently as August—a sudden reversal that came after its inflation forecasts missed the mark.
Inflation Picks Up
“A wide range of data over recent months have confirmed that inflationary pressures picked up materially in the second half of 2025,” the RBA’s monetary policy board said in a statement.
“While part of the pickup in inflation is assessed to reflect temporary factors, it is evident that private demand is growing more quickly than expected, capacity pressures are greater than previously assessed and labor market conditions are a little tight.”
The Journal reported noted inflation has risen back above the RBA’s target band of 2% to 3%, with core inflation threatening to top 4.0% in 2026 giving the strength of demand in the economy.
“The board judged that inflation is likely to remain above target for some time and it was appropriate to increase the cash rate target,” the central bank said.
‘Too Strong’
The RBA’s governor, Michele Bullock, told reporters that while she won’t offer forward guidance it was clear that inflation is “too strong” and that the central bank can’t afford to let it get out of hand.
The decision to raise interest rates was backed unanimously by the RBA’s nine-member policy-setting board.
