Australia raises interest rates to 15-year high

Australia’s central bank has raised interest rates to a 15-year high, spelling higher mortgage payments for millions of Australian households.

The Reserve Bank of Australia (RBA) on Tuesday lifted the benchmark rate by 0.25 percent to 4.6 percent, its highest since 2011.

The RBA said inflation remained elevated and that previously flagged “upside risks” had materialised, including higher energy prices due to the United States-Israel war on Iran and an AI-driven surge in tech costs.

“There continue to be heightened uncertainties about the outlook for domestic economic activity and inflation,” the bank’s monetary board said in a statement.

“The Middle East conflict remains unresolved, and there are scenarios where inflation is higher and activity lower than forecast,” it said.

“Global oil supply disruptions are maintaining upward pressure on global and domestic energy prices and inflation. A period of prolonged uncertainty may also cause growth to be lower overseas and in Australia.”

Australia’s annual rate of inflation stood at 3.5 percent in July, well above the central bank’s 2–3 percent target.

Central banks typically raise their benchmark interest rate when policymakers believe prices are rising too fast.

Higher interest rates raise the cost of borrowing, including mortgages, cooling consumer demand and bringing down inflation.

The latest hike is set to heap further strain on Australian households already grappling with three previous increases this year.

In a research report earlier this month, Roy Morgan said nearly one-third of Australian mortgage holders, or nearly 1.8 million people, were at risk of “mortgage stress” – where households spend 25-45 percent of after-tax income on payments – as of July.

Australia’s Treasurer Jim Chalmers, who is not responsible for setting interest rates, acknowledged that the hike would mean greater hardship for many Australians.

“We know a lot of Australians are under pressure and this will make things harder,” Chalmers said in a post on X.

“Inflation and interest rates are going up around the world but we know that doesn’t take the sting out of today’s decision.”

Chalmers said the government would take responsibility for “our part of the fight against inflation”.

“That means continuing to manage the budget responsibly, rolling out tax cuts and cost of living help, and addressing the longer term challenges in our economy in an uncertain global environment,” he said.