RBA Hikes Cash Rate to 4.6%, Warns of Permanent Price Increases

The Reserve Bank of Australia (RBA) has increased its key interest rate to 4.6%, the highest level since 2011, in an effort to combat rising inflation.

RBA Governor Michele Bullock warned that higher prices from the AI investment boom and disruptions to oil supply due to the US war on Iran are contributing to permanent price increases, including fuel, fertiliser, and transport costs.

The decision to hike rates was unanimous among RBA board members, who also noted that underlying inflation is expected to rise at an annual pace of 3.6% for the third month running in August, exceeding the target range of 2-3%.

Bullock emphasized that while the economy is slowing as expected, the RBA may have to create a recession if households begin to assume inflation will remain high, but she sought to avoid massive job losses and expressed hope that higher rates would bring down inflation within two years.