The Reserve Bank of Australia (RBA) has raised the official cash rate (OCR) 25 basis points to 4.35%, citing stronger-than-expected inflationary pressures as the primary driver.

“Inflation picked up materially in the second half of 2025, and information since the beginning of this year confirms that some of this increase reflected greater capacity pressures,” the board said in a statement. “In addition, the conflict in the Middle East has resulted in sharply higher fuel and related commodity prices, which are already adding to inflation.

There are early signs that many firms experiencing cost pressures are looking to increase prices of their goods and services. Short-term measures of inflation expectations have also risen.

“In light of these considerations, the board assessed that inflation is likely to remain above target for some time and that the risks remain tilted to the upside, including to inflation expectations,” continued the statement. “It was therefore judged appropriate to increase the cash rate target.”

The decision was made by majority vote.

The widely expected move marks the third time the nation’s central bank has raised rates in 2026 thanks to ongoing inflationary pressures and the conflict in the Middle East, which has raised oil prices globally.

The latest consumer price index (CPI) revealed that both headline CPI and trimmed mean inflation remain elevated and well above the RBA’s target inflation range.

The conflict in the Middle East between the US, Israel and Iran, which began in March, sparked concerns about domestic fallout. Those fears were reinforced almost immediately, when RBA Deputy Governor Andrew Hauser warned that inflation was running hotter than the bank had previously forecast.

In April, National Australia Bank (NAB) amplified market jitters when it warned that the conflict’s gradual seep into Australia’s economy would likely drive an increase in bad debts.

On the jobs front, unemployment held steady at 4.3% through February and March, doing little to shift economists’ monetary policy outlook.

By April all four of Australia’s Big Four banks were aligned, each betting on another rate hike at the RBA’s May meeting.

The RBA’s latest move impacts mortgage holders and investors nationwide, many of whom are already strained by already-higher interest rates and increased living expenses. And in a market grappling with housing shortages and rising property prices across many of Australia’s capital cities, higher rates push the barrier to entry further out of reach for many first-time homebuyers.