RBA lifts rates, warns of inflation hit from fuel prices due to Iran war

(Sharecast News) - Australia's central bank on Tuesday lifted interest rates for the second consecutive time and warned persistent inflation would stay higher for an extended period due to the energy price shock caused by the war on Iran. In a 5-4 vote among its policy board, the Reserve Bank of Australia lifted its cash rate target to 4.1% from 3.85%, taking it back to levels seen a year ago and effectively removing the relief of two cuts in 2025.

It has become the first central back to respond to the crisis cause by the conflict, caused by US-Israeli attacks on Iran and Lebanon which has led to soaring oil and gas prices. Policymakers in the US, UK, European Union, Japan, Canada, Switzerland and Sweden are all expected to leave rates on hold this week.

"Developments in the Middle East remain highly uncertain, but under a wide range of possible scenarios could add to global and domestic inflation," the RBA said in a statement.

Bank governor Michele Bullock said the high petrol prices would add to inflation, currently at 3.8%, but said they were not the driver for Tuesday's decision, noting that "inflation was already too high".

"If we don't bring the excess demand down, then businesses are just going to build that into their costs, so it's going to be even worse for everyone," Bullock said.

"This hit with the fuel prices and this additional rise in mortgage rates is going to be hard for some people, I do understand that, but it'll be much worse if inflation gets built into the fibres," Bullock said.

Reporting by Frank Prenesti for Sharecast.com