The Reserve Bank of Australia Hikes Interest Rates

Today, the RBA (Reserve Bank of Australia) raised its key interest rate by 25 basis points from 3.85% to 4.10%, with the nine-member policy committee voting by 5 – 4 in a split decision. In 2023, officials delivered three rate cuts, and today’s first back-to-back rate hike since 2023 reverses two of those three cuts. After the vote, Governor Michelle Bullock advised that the Iranian conflict in the Middle East represented part of the decision to hike rates, but pointed out that prices still remained too high.

The Deputy Governor of the RBA, Andrew Hauser, has already echoed the Governor’s words in a statement last week when he advised that price rises driven by the Iranian conflict would not be helpful in combating inflation. Experts suggest that a rise in interest rates was on the cards, and perhaps the on-going conflict in the Middle East fuelled the debate as to whether to hike interest rates now or at the next policy meeting.

In February this year, officials from the RBA had forecasted that the CPI (Consumer Price Index) would peak at 4.2%, this was partly based on the technical assumption that crude oil would remain at circa $63.8pbl through to 2028, but today, Brent Crude is trading between $103pbl – $104pbl. However, the Treasurer of Australia, Mr James Chalmers, has announced that he anticipates inflation rising to 4.5% and that households can expect increased cost of living expenses. Today, he went on to say that Australia already had an inflation challenge, but the war in the Middle East is making this challenge worse. 

Many experts and analysts are expecting another 25-basis point hike in May, and if the Iranian conflict is still going on and oil surpasses the $150pbl mark, the increase could be even higher. Elsewhere in Indonesia, BI (Bank Indonesia) held its benchmark interest rate (BI-Rate) at 4.75%  marking a continued stance of stability amid the on-going Middle East conflict and other geopolitical and geo-economic unrest. However, the Middle East conflict has brought Asia and South East Asia to the forefront of the oil crisis and only time will tell how their economies will react.