National

Rates raised again as oil spike fuels inflation fears

Mar 17, 2026

Michele Bullock and Jim Chalmers (file images) — Most economists tipped the Reserve Bank to lift interest rates due to inflationary pressures. -AAP Image

The Reserve Bank of Australia has hiked interest rates for the second consecutive month as war in the Middle East compounds inflation concerns.

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In a split five-four decision on Tuesday, the tightest since the central bank started publishing vote tallies, the RBA's monetary policy board lifted the cash rate by 25 basis points to 4.1 per cent.

It follows a hike of the same size in February.

The move was tipped by the majority of economists and money markets, which had priced in the chance of a hike at more than two-thirds.

Domestic price pressures, including a tight labour market and strong economic growth, were already pushing inflation too high for the RBA's liking before US-Israeli strikes on Iran.

The war and Iran's retaliatory attacks led to the closing of the Strait of Hormuz, a key oil channel, and plunged global energy markets into chaos.

Headline inflation rose 3.8 per cent in the year to January, according to monthly data released by the Australian Bureau of Statistics, above the RBA's 2-3 per cent target band.

The central bank has been loath to move rates at meetings that don't immediately follow the release of quarterly inflation figures, when it can gauge its preferred measure of underlying price growth.

But as the benchmark oil price spiked from about $US70 ($A99) a barrel to as high as $US119 ($A168) a barrel and inflation expectations soared, precedent went out the window.

"Short-term measures of inflation expectations have already risen," the board said in a statement.

"As a result, the board judged that there is a material risk that inflation will remain above target for longer than previously anticipated."

Ahead of the decision, money markets were almost fully priced in for two further rate rises in 2026, which would bring the cash rate to 4.6 per cent by Christmas.

Each 25 basis point rise adds about $90 in monthly repayments to a typical loan of $600,000 on an owner-occupied property.

Treasurer Jim Chalmers said the decision would be tough news for millions of Australians with a mortgage.

"Inflation has moderated significantly from its peak, but it is higher than we would like and conflict overseas has put upward pressure on global fuel prices," he said.

"The duration of the conflict will be the primary determinant of how much pressure it adds to global inflation and how much it is a hit to growth."

Attention turns now to what tone governor Michele Bullock strikes in her post-meeting press conference as traders try to guess how many more hikes the RBA has in store.

The board said part of the pick-up in inflation was likely temporary, but the labour market had tightened a little recently and capacity pressures were slightly greater than previously assessed.

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

CreditorWatch chief economist Ivan Colhoun said the RBA's decision was justified.

"While this is news that is unwelcome for both households and businesses, neither is the situation where inflation is allowed to run above-target for a further extended period," he said.

Australian Chamber of Commerce and Industry chief executive Andrew McKellar said the decision might be the final nail in the coffin for many businesses already stretched by years of weak economic activity and tight margins.

"The current fuel crisis only elevates the need to pursue economic reforms that will drive productivity growth, by making it easier to do business and encouraging businesses to invest," he said.