RBA Raises Cash Rate 25 bps to 4.35%

The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.35 percent on Tuesday, marking the third consecutive increase this year and returning borrowing costs to levels last seen in early 2025 amid persistent inflation pressures fueled by a Middle East conflict.

The decision, announced after the bank's May policy meeting in Sydney, passed with an 8-1 board vote, a more decisive shift than the narrow 5-4 split in March. Inflation reached 4.6 percent in March, its highest in nearly three years and well above the bank's 2-3 percent target range, driven by surging fuel prices from the conflict. The board noted that higher fuel costs were adding to inflation with signs of second-round effects spreading to broader goods and services. "Inflation is likely to remain above target for some time and that the risks remain tilted to the upside, including to inflation expectations," the statement said.

The hike reverses three rate cuts made in 2025, which had lowered the cash rate from a peak of 4.35 percent to 3.6 percent. That earlier easing prioritized labor market gains but allowed inflation to reignite later in the year. The current conflict, including disruptions to...