Australia’s Reserve Bank of Australia (RBA) raised its cash rate to 4.6% on September 29, 2026, the highest level since 2011, as inflation remained elevated amid global energy price surges linked to the Middle East conflict and AI-driven cost pressures.
The RBA’s decision to lift the benchmark rate by 0.25 percentage points marked the fourth increase of 2026, pushing the cash rate to its highest since October 2011. The central bank cited heightened uncertainties about inflation and economic activity, noting that the unresolved Middle East conflict had exacerbated global energy price pressures. The RBA noted in its policy statement that the Middle East conflict remains unresolved, and there are scenarios where inflation could be higher and economic activity lower than projected, the RBA stated in a policy statement.
Australia raises interest rates to 15-year high
The 4.6% rate, the highest in 15 years, was driven by persistent inflation, which stood at 3.5% in July 2026, well above the central bank’s 2-3% target. The RBA highlighted “upside risks” including energy price shocks from the United States-Israel war on Iran and surging tech costs linked to AI adoption. Global oil supply disruptions are maintaining upward pressure on global and domestic energy prices, the bank said. The decision aligned with market expectations, though it highlighted the central bank's commitment to curbing inflation through tighter financial conditions.
The RBA’s governor, Michele Bullock, acknowledged the Middle East conflict’s role in complicating inflation control. The Middle East conflict has been a big shock and it’s made us all poorer in this country,
she said. She added that the conflict’s prolonged nature had led to permanent higher fuel, fertilizer, and transport costs, which were not expected to revert to pre-conflict levels.
Homeowners with a mortgage are braced for the fourth interest rate hike of the year, with the latest increase set to raise monthly repayments for millions. A majority of borrowers did not reduce their mortgage repayments last year when rates fell, as most banks (but not Westpac or Macquarie) did not automatically lower payments, instead directing the savings toward paying down loan principal. In February 2026, Commonwealth Bank informed Yahoo Finance that just 11% of clients adjusted their direct debit payments after the third rate cut in August 2025. ANZ reported that 14% of customers had chosen to lower their repayments since the rate cuts commenced, while NAB indicated that 80% of clients maintained their repayment amounts following the rate increases.
Why today's interest rate hike is different and will
The three rate hikes so far this year have returned the cash rate to the high recorded coming out of the pandemic, and the latest hike would further strain borrowers. Independent housing economist Cameron Kusher warned that the impact of this interest rate increase and any future increases will impact on mortgage holders much more than previous ones,
. Nearly 1.8 million mortgage holders were at risk of mortgage stress as of July, according to Roy Morgan.
Home loan debt has grown significantly since 2011, rising from over $1 trillion to $2.51 trillion, according to APRA monthly banking statistics highlighted this week by Canstar. The RBA’s decision to raise rates to 4.6%—a level last seen in October 2011—has left many borrowers grappling with the prospect of sustained higher payments. The central bank’s statement noted that the Middle East conflict has broadened and global energy prices are now much higher than had been assumed,
.
The Australian dollar (AUD) attracts some buyers in an immediate reaction to the RBA’s decision, with the AUD/USD pair up 0.04% on the day at 0.7020. The AUD was the strongest against the New Zealand Dollar, with the pair climbing 0.45% on the day. However, the S&P/ASX 200 remained flat, reflecting mixed investor sentiment. The RBA’s monetary board considered a pause and 25-bps hike today.
Australia raises rates to 15-year high as it fights
In her press conference, RBA Governor Bullock emphasized the need to do what it considers necessary to bring inflation down. She acknowledged that the Middle East conflict had worsened inflationary pressures but stressed that the central bank was well placed to respond to developments. The central bank also flagged risks from AI-driven cost increases, stating that risks to inflation from AI boom are building
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Bullock reiterated that the Middle East conflict was not the sole driver of inflation. This isn’t all about the Middle East conflict,
she said. It is making things much worse. But we did start from a position of excess demand anyway, and that’s why we started raising interest rates even before the conflict started.
She noted that the extended duration of the conflict makes it increasingly difficult to keep inflation expectations below current inflation levels.
For now, Australian households face a daunting prospect: facing one of the most aggressive rate-hiking cycles in decades amid unresolved global conflicts and economic uncertainty.