interest

Reserve Bank of Australia lifts benchmark rate to 4.6 percent amid stubborn inflation.

Australia’s central bank has raised interest rates to a 15-year high, spelling higher mortgage payments for millions of Australian households.

The Reserve Bank of Australia (RBA) on Tuesday lifted the benchmark rate by 0.25 percent to 4.6 percent, its highest since 2011.

The RBA said inflation remained elevated and that previously flagged “upside risks” had materialised, including higher energy prices due to the United States-Israel war on Iran and rising tech costs.

“There continue to be heightened uncertainties about the outlook for domestic economic activity and inflation,” the bank’s monetary board said in a statement.

“The Middle East conflict remains unresolved, and there are scenarios where inflation is higher and activity lower than forecast,” it said.

“Global oil supply disruptions are maintaining upward pressure on global and domestic energy prices and inflation. A period of prolonged uncertainty may also cause growth to be lower overseas and in Australia.”

Australia’s annual rate of inflation stood at 3.5 percent in July, well above the central bank’s 2–3 percent target.

Central banks typically raise their benchmark interest rate when policymakers believe prices are rising too fast.

Higher interest rates raise the cost of borrowing, including mortgages, cooling consumer demand and bringing down inflation.

The latest hike is set to heap further strain on Australian households already grappling with three previous increases this year.

In a research report earlier this month, Roy Morgan said nearly one-third of Australian mortgage holders, or nearly 1.8 million people, were at risk of “mortgage stress” – where households spend 25-45 percent of after-tax income on payments – as of July.

Australia’s Treasurer Jim Chalmers, who is not responsible for setting interest rates, acknowledged that the hike would mean greater hardship for many Australians.

“We know a lot of Australians are under pressure and this will make things harder,” Chalmers said in a post on X.

“Inflation and interest rates are going up around the world but we know that doesn’t take the sting out of today’s decision.”

Chalmers said the government would take responsibility for “our part of the fight against inflation”.

“That means continuing to manage the budget responsibly, rolling out tax cuts and cost of living help, and addressing the longer term challenges in our economy in an uncertain global environment,” he said.

Barcelona’s sporting director Deco said the club has no interest in pursuing Manchester United teenager JJ Gabriel.

Gabriel, 15, travelled to the Spanish city after informing United that he wanted to leave Old Trafford earlier this month.

Real Madrid, Bayern Munich and Paris St-Germain are among the clubs reportedly keen on securing his signature.

“There’s nothing to say about this boy,” Deco said at a news conference.

“It’s normal we always have players linked with us. There’s a huge market for that, even when they are young.

“We are not interested in any player in his situation. I’m not sure what’s happening, and if he’s still a Manchester United player. We are not involved in that.

“First of all, we need to understand how the situation is before we try to do something. To speak about young, teenage players, it is not our business.”

Gabriel has not trained at United since scoring a hat-trick on his Uefa Youth League debut on 10 September.

Tournament rules prevent him from playing for a side other than United in this season’s competition.

But if he obtains a European Union passport through either his father – a former Republic of Ireland international – or mother, who has Greek-Cypriot heritage, he could join a club in the EU when he turns 16 on 6 October.

Last week, United manager Michael Carrick urged for people to be “careful and sensible” about the amount of exposure and scrutiny given to the youngster.

A day after unveiling Pontes, its system for settling tokenised assets in central bank money, the ECB has set out how it wants Europe’s crypto rulebook rewritten.

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The response, published on Tuesday by the European System of Central Banks, which groups the ECB with the EU’s national central banks, argues for tougher rules on stablecoins, staking and crypto firms.

It feeds into the European Commission’s review of the Markets in Crypto-Assets Regulation, known as MiCA, the EU’s rulebook for cryptocurrencies and the firms that trade them.

MiCA has applied since December 2024, and the last transitional deadline for existing operators expired on 1 July, including Binance, the world’s largest exchange, to stop serving European customers.

The Commission’s consultation will close on 30 September, a month later than planned.

The central banks’ recommendations are not binding, and the Commission will weigh them alongside other responses before deciding whether to reopen the law.

EU diplomats have told Euronews they expect a revision in 2027, which would need the approval of the European Parliament and member states.

No interest and no loopholes

Stablecoins are cryptocurrencies designed to hold a steady value, usually by tracking the US dollar.

MiCA already bars both issuers and crypto exchanges from paying interest on them, and the central banks want it kept that way.

“The payment of stablecoin remuneration should continue to be prohibited,” the ECB response says.

Their targets are the workarounds. Some exchanges, the response notes, offer crypto lending, borrowing and staking, “thereby replicating the economic effect of interest payments through ancillary or unregulated services.”

The central banks want the ban extended to those activities and to indirect rewards, such as certain loyalty-programme benefits, calling it “a clear legislative priority”.

Washington has gone the other way.

The 2025 GENIUS Act banned US stablecoin issuers from paying interest but left exchanges free to offer rewards, and whether to close that gap became one of the most contested fights over the CLARITY Act, the landmark crypto bill that fell ten votes short in the US Senate on 15 September.

A brake on US dollar stablecoins

The central banks want stronger tools against tokens pegged to foreign currencies.

It would be useful, they say, if authorities could impose “a prohibition to issue new tokens, as well as an obligation to redeem existing tokens” on issuers where central banks judge that the tokens pose a threat, including to financial stability.

More broadly, they see limited benefit in stablecoins for everyday payments at home, given instant bank transfers and the planned digital euro. They warn that MiCA provides no legal basis for issuing the same stablecoin both inside and outside the EU.

In a bank run, European reserves could end up paying holders elsewhere, while “EU authorities cannot determine with certainty how many tokens are held within the Union.”

Eurozone central banks also do not currently let stablecoin issuers hold customer funds with them.

A token fully backed by central bank money, the response warns, “would effectively result in a ‘synthetic’ central bank digital currency” that is essentially a private imitation of the digital euro and could, in theory, drain deposits from commercial banks, especially under stress.

Staking and decentralised finance

On staking, where users lock up crypto in exchange for rewards, the response is blunt: “Staking, lending and borrowing of crypto-assets should be regulated at Union level.”

Where a firm takes customers’ crypto and promises to return it, potentially with a premium, the central banks argue that the arrangement can be “comparable to the taking of repayable funds”, in the language of banking.

The same applies to decentralised finance, or DeFi, where lending and trading run on automated software rather than through a company.

MiCA exempts fully decentralised services but never defines the term, and the central banks cite studies showing that full decentralisation is rarely, if ever, achieved, leaving it unclear who is in control.

Who licenses crypto exchanges?

The central banks also back a Commission proposal to move licensing and supervision of crypto firms from national regulators to ESMA, the EU’s markets watchdog.

Currently, one national licence covers the whole bloc, which was the route Binance originally pursued in Greece.

The Wall Street Journal reported last week, citing people familiar with the discussions, that ECB President Christine Lagarde urged Greek Prime Minister Kyriakos Mitsotakis not to approve Binance’s application because of the exchange’s past compliance problems and fears that its scale could deepen the use of US dollar stablecoins in Europe.

A senior Greek regulator, according to the newspaper, told the exchange that Lagarde wanted the decision delayed until ESMA took over, the same shift the central banks endorse in Tuesday’s response. Binance withdrew the application on 24 June.

Neither the ECB nor the Greek regulator has confirmed the account. The ECB, which has no formal role in licensing crypto firms, declined to comment, while Binance said it would “not comment on speculation”.

Iran’s missiles and drones have downed dozens of US aircraft, damaged or destroyed hundreds of the United States’ buildings at its bases in the Middle East, and drained its inventories of military equipment worth billions of dollars, the Pentagon conceded earlier this week.

On Wednesday, Tehran unleashed another unlikely weapon in its war against the US: a maths equation.

Iranian Parliament Speaker Mohammad Bagher Ghalibaf, who has also been a lead negotiator during talks between Tehran and Washington at different stages during the past six months, typed out a version of the Taylor equation, a formula used by central banks to determine interest rates, in a post on X loaded with a wartime message.

“Let’s see if a hike could open SOH or produce a single barrel,” he wrote, referring to interest rate hikes and the Strait of Hormuz, a crucial waterway Iran has effectively blocked for global shipping.

“You can’t 25bp [basis points] a chokepoint,” he added, seemingly again referring to the strait. “It’s SOH risk premium, and We set it.”

Hours after Ghalibaf’s post, the US Federal Reserve did raise the benchmark interest rate by 25 basis points.

Early in the war, which was launched by the US and Israel against Iran on February 28, Ghalibaf frequently used financial arguments to mock how the conflict was being conducted by the administration of US President Donald Trump, to point to Iran’s ability to hurt Washington economically unless it changed its approach.

Now he’s turned to maths.

“This is a spectacular bit of agitprop from Iran, a country which, if nothing else in 2026, has demonstrated an impressive ability to needle its US opponent,” Chris Beauchamp, chief market analyst at IG Group, told Al Jazeera.

But what exactly is Ghalibaf trying to say? What is the Taylor equation, has the Iran war influenced the US interest rate, and does Tehran “set it”, as the parliament speaker has suggested?

What is the Taylor equation that Ghalibaf cited?

The rule is a formula economists use to estimate where a central bank should set interest rates based on inflation and the strength of the economy.

Developed by economist John Taylor in the early 1990s, the rule links the US federal funds rate to inflation and the “output gap” – the difference between actual economic output and its potential.

In its simplest form, the formula is:

Interest rate = inflation + 0.5(output gap) + 0.5(inflation − 2%) + 2%.

This means the recommended interest rate rises when inflation moves above the 2 percent target or when economic output exceeds its potential. It falls when inflation weakens or the economy operates below potential.

However, the equation is a benchmark, not a set rule that is strictly followed. Policymakers at the US Federal Reserve weigh other economic factors when setting interest rates.

Is the Iran war a factor in the US interest rate hike?

Trump’s tariffs, the energy shock following the US-Israeli war with Iran, and heavy investment associated with the artificial intelligence boom, taken together, have kept inflationary pressures strong, experts say.

On Wednesday, when the US Federal Reserve raised interest rates by 25bp, it was the first increase in three years.

Fed Chairman Kevin Warsh, in his speech following the rate hike, said renewed fighting between the US and Iran, which has pushed up petrol prices, helped convince Fed officials to support higher rates.

“There’s no hiding from hot spots around the world,” Warsh said.

IG Group’s Beauchamp said, “The Iran war, indirectly, is a huge driver of last night’s hike, though no one wants to admit it.”

“The energy spike has combined with the rise in yields to drive the Fed into a corner with no way out,” he said.

Susannah Streeter, chief investment strategist at the Wealth Club, said there is “no denying” that Iran’s retaliatory action against the US and its allies across the Gulf region has “intensified concerns about energy supplies and led to hotter inflation forecasts”.

“The ongoing geopolitical turmoil and elevated crude prices certainly were key issues behind the Fed’s decision to hike rates,” she said.

Is Iran ‘setting’ the US interest rate?

In short, no.

Wealth Club’s Streeter cautioned that while the war in the Middle East and rising oil prices were certainly an element in the Fed’s decision, they weren’t the “only factors at play”.

“The spending might of AI hyperscalers has also pulsed through the veins of the economy, with strong capital investment and resilient domestic demand adding to inflationary pressures, so policymakers will have been looking at the whole picture,” she noted.

“So, while Tehran has arguably had an influence on some of the forces feeding into US monetary policy, particularly through the impact of the conflict on oil supplies and prices, it is not ‘setting’ US interest rates.”

Streeter said the US Federal Reserve was responding to a much broader set of economic conditions.

“Iran’s actions have affected the inflation outlook, but the decision on where to set interest rates ultimately rests with the Federal Reserve, and there are plenty of other data points policymakers use,” she noted.

What’s behind Ghalibaf’s maths mocking?

In March, Iran’s parliamentary speaker had repeatedly used social media to comment on markets and energy prices, including mocking efforts by the Trump administration to influence oil futures and arguing that financial manoeuvring could not create “actual fuel” at petrol stations.

Last month, Ghalibaf posted a graphic bearing the phrase “Make America Hungry Again” – a play on Trump’s slogan “Make America Great Again” – together with statistics on food insecurity and hunger in the US.

“You can’t cover up defeats with false claims,” he said.

DEVELOPING STORYDEVELOPING STORY,

The 25 basis-point hike is the first raise in three years and comes ahead of critical midterm elections in the United States.

The United States Federal Reserve has said it will raise interest rates by a quarter of a percentage point as inflation, driven by soaring fuel prices amid the US-Iran war, continues to weigh on the economy.

The Fed, which is the central bank of the US, said on Wednesday that it will hike interest rates by 25 basis points to 3.75 percent to 4 percent.

It is the first hike in more than three years and comes just weeks before the US midterm elections, despite repeated demands from US President Donald Trump to lower rates.

“Economic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient,” the Fed said in a statement on Wednesday.

“Inflation remains elevated. Today’s policy action will support a timelier return to the Committee’s 2 percent goal. The Committee will deliver price stability.”

After Wednesday’s hike, Fed officials expect one more rate increase this year, according to their quarterly projections.

CME FedWatch, which tracks the likelihood of monetary policy decisions, forecast a 92.3 percent chance of the Fed increasing rates to 3.75 to 4 percent. A week ago, that forecast was a 40 percent chance of a quarter-percent rate increase.

But in the days since, a slew of data shifted those expectations.

For one, consumer prices jumped in August by 0.4 percent, the highest increase in four months. On an annual basis, prices rose 3.4 percent, matching the increase recorded in July, while the job market remains healthy.

Since then, benchmark crude oil prices have continued to soar as strikes in the US-Israel war on Iran have intensified. Brent crude hovered near $109 per barrel on Tuesday.

The average price for a gallon (3.8 litres) of petrol is $4.36, up 14 cents in the past week, and up from $4.06 in the last month, according to the American Automobile Association (AAA), which tracks daily petrol prices.

Diesel, on the other hand, was at $6.31, the highest recorded average and roughly double from a year ago. That, in turn, is expected to further stoke prices as diesel is used in trucks to haul everything from fruits and vegetables to steel and cement.

At the same time, the benchmark 10-year Treasury yield broke above the psychologically important 5 percent threshold on Tuesday, hitting 5.02 percent, its highest level in 19 years. The yield serves as a benchmark for borrowing costs, including car loans and home mortgages, and is a bellwether for inflation.

“The economy is in an unusual place,” Michael Klein, professor of international economic affairs at Tufts University’s Fletcher School and executive editor of EconoFact, a nonpartisan economic and social policy publication, as unemployment remains at a comfortable level while higher prices continue to stick, sending inflation beyond the Fed’s target of 2 percent.

“There [has been] a lot of pressure on Chairman Warsh to raise interest rates because of inflation coming in high, and that has been compounded by concerns about Trump’s pressure” as the president has continued to demand that interest rates be lowered, Klein said.

“Higher interest rates tend to weaken the economy… but if the market believes that there’s going to be a rate increase, it’s priced in already as prices move on news, so this won’t be news,” Klein said, adding that should help steady yields.