Australia's central bank raises rates to 4.6%, highest in 15 years, citing Middle East conflict and AI-driven demand

Australia's central bank on Tuesday raised rates to 4.6%, their highest level in 15 years as the country looks to contain inflation stoked by the Middle East conflict.

The hike of 25 basis points was in line with expectations by economists polled by Reuters.

The Reserve Bank of Australia has now raised rates four times this year by a total 100 basis points as inflation remains sticky.

In its statement, the RBA said some of the upside risks flagged in its August meeting were now materializing.

"The conflict in the Middle East has broadened and global energy prices are now much higher than had been assumed," the central bank wrote, adding that AI-related demand was driving rapid price increases for technology-related goods.

The RBA also said that it would "continue to do what it considers necessary," to contain inflation, including increasing the policy rate further.

Australia's inflation has run above its target band of 2%-3% for 2026, hitting a high of 4.6% in March. The country's inflation rate last came in at 3.5% in July, beating estimates. August print is set to be released Wednesday.

A note from Bank of America last week said inflation was accelerating rather than converging back to target. "The July CPI was the clearest evidence of this shift, adding to a pattern of rising core inflation in recent months."

There is also evidence of second-round effects from energy costs, reinforcing the risk that inflation is becoming entrenched, BofA said.