Australia has raised interest rates to a 15-year high, with the Reserve Bank of Australia lifting its benchmark rate by 0.25 percentage points to 4.6 per cent amid persistent inflation.
The increase is expected to push up mortgage payments for millions of Australian households and adds to pressure from three previous rises this year.
Australia raises interest rates as inflation remains above target
The central bank said inflation remained elevated and that previously identified “upside risks” had emerged. It pointed to higher energy prices linked to the United States-Israel war on Iran, as well as rising technology costs.
Annual inflation stood at 3.5 per cent in July, above the Reserve Bank’s target range of 2 to 3 per cent.
In a statement, the bank’s monetary board said there were “heightened uncertainties about the outlook for domestic economic activity and inflation”. It warned that the unresolved conflict in the Middle East could produce higher inflation and weaker economic activity than forecast.
“Global oil supply disruptions are maintaining upward pressure on global and domestic energy prices and inflation,” the board said. “A period of prolonged uncertainty may also cause growth to be lower overseas and in Australia.”
Higher interest rates increase borrowing costs, including for mortgages, with the aim of reducing consumer demand and bringing inflation down.
A report by Roy Morgan earlier this month said nearly one-third of Australian mortgage holders – almost 1.8 million people – were at risk of “mortgage stress” in July. It defined that as households spending between 25 and 45 per cent of their after-tax income on mortgage payments.
Jim Chalmers, Australia’s Treasurer, acknowledged that the decision would intensify financial pressure on many households, although interest rates are set by the central bank.
“We know a lot of Australians are under pressure and this will make things harder,” Mr Chalmers said in a post on X.
He added: “Inflation and interest rates are going up around the world but we know that doesn’t take the sting out of today’s decision.”
Mr Chalmers said the government would continue to manage the budget responsibly, introduce tax cuts and cost-of-living support, and address longer-term economic challenges.
