Sydney: The Reserve Bank of Australia increased its policy interest rate by 25 basis points to 4.1% on Tuesday, the highest level since April 2025. "While inflation has fallen substantially since its peak in 2022, it picked up materially in the second half of 2025," the bank said.

According to Anadolu Agency, the bank mentioned that some of the increase in inflation reflects greater capacity pressures. "In addition, the conflict in the Middle East has resulted in sharply higher fuel prices, which, if sustained, will add to inflation," the bank stated.

The bank also indicated that financial conditions have tightened a little in 2026, but the extent to which monetary policy is restrictive remains uncertain. It added: "Globally, the conflict in the Middle East poses substantial risks in both directions. A longer or more severe conflict could put further upward pressure on global energy prices; this will push up near-term inflation and could also increase inflation further out if it impairs supply capacity or price rises get built into longer term inflation expectations."

The statement noted that higher prices and prolonged uncertainty might cause growth to be lower in Australia's major trading partners and also in Australia.