The Reserve Bank of Australia raises interest rates and hints at more rate hikes in the future.

The Reserve Bank of Australia implemented its first rate hike since the end of 2023, citing deteriorating inflation prospects and overall improvement in the country's economy in recent quarters. The Reserve Bank of Australia raised the official overnight cash rate by 25 basis points to 3.85% on Tuesday, reversing the rate cut implemented in August. This move was a sudden policy reversal as the bank's inflation forecasts had not been met. The Monetary Policy Committee of the Reserve Bank of Australia stated in a release, "Extensive data in recent months confirm a marked increase in inflation pressures in the second half of 2025." The committee added, "While some of the drivers of the pickup in inflation are assessed to reflect temporary factors, it is evident that growth in demand is stronger than expected, capacity pressures are greater than previously assessed, and labor market conditions are somewhat tight." Inflation has risen above the target range of 2% to 3% for the Reserve Bank of Australia, with core inflation potentially exceeding 4.0% in 2026 given the strong momentum in the country's economic demand. Some economists suggest that the tone of Tuesday's statement is tightening, paving the way for a second rate hike in May. The bank stated, "The committee assesses that inflation may remain above target for some time, therefore raising the overnight cash rate target is appropriate."