Reserve Bank of Australia lifts benchmark rate to 4.6 percent amid stubborn inflation.
Published On 29 Sep 202629 Sep 2026
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.
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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.
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Bank of Japan raises benchmark interest rate from 1 to 1.25 percent, pledging to help counter inflation risks.
Published On 18 Sep 202618 Sep 2026
The Bank of Japan (BoJ) has raised interest rates by 0.25 to 1.25 percent, pushing borrowing costs to their highest level in 31 years, amid rising inflation and wages, and pressure from Washington.
The move on Friday marked the first hike since June, and takes interest rates closer to levels the BoJ deems neutral to the economy, marking another step away from decades of ultra-low rates that cemented the yen’s status as a cheap global funding currency.
Japan is grappling to contain inflation, which is being driven by factors including rising energy prices, global supply pressures and domestic inflation exceeding the 2 percent target.
Core consumer inflation held steady near the target in August, data showed on Friday, as companies continued to pass on rising costs for a wide range of food and grocery items.
The country also faced a “slow-moving demographic shock” with a shrinking labour pool lifting wages, a structural factor that cannot be dismissed as temporary, BoJ Executive Director Koji Nakamura said on Monday.
The Federal Reserve’s rate hike on Wednesday, and the prospect of another one later this year, have added pressure on the BoJ to keep pace.
Further widening of the United States-Japan rate gap risks weakening the yen and lifting inflation through higher import costs, analysts told the Reuters news agency.
Its policy rate also remains lower than the European Central Bank, which raised its key rate to 2.5 percent last week.
Such pressure could affect the tone of BoJ Governor Kazuo Ueda’s post-meeting briefing, which will be closely watched by markets for clues on the timing and pace of further increases.
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.
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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?
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.
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.
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.
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.
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The ‘Old Lady of Threadneedle Street’ has chosen to wait, though not unanimously.
The Monetary Policy Committee voted by a majority of six to three on Thursday to leave borrowing costs unchanged, with the dissenting trio pushing for a quarter-point increase to 4%.
The decision puts the Bank of England at odds with the Federal Reserve and the European Central Bank, both of which have tightened within the past week.
Despite holding, the central bank expects the situation to worsen before it improves.
Inflation “is likely to rise further over coming quarters,” the committee said, pointing to crude and refined energy prices that have climbed again since its last meeting and remain “more volatile and higher than pre-conflict.”
The case for holding rests on what has not yet happened.
“There has been little evidence so far of material second-round effects in price and wage-setting,” the statement read, meaning expensive energy is not yet feeding into broader wages and prices.
However, that reprieve may be temporary.
The risk of such effects “is greater the longer higher energy prices persist or are more volatile,” the committee warned, adding that risks to the inflation outlook are “tilted to the upside, and more so than at the time of the July Monetary Policy Report.”
Brent crude and UK wholesale gas prices have risen 36% and 78% respectively since July, with Brent at $106 a barrel and gas at 207 pence per therm on 14 September.
Refinery pressures have kept crack spreads, the gap between refined fuel prices and crude, well above pre-conflict levels.
Economic activity has held up slightly better than expected, while a soft labour market and the higher borrowing costs households and businesses have faced since the conflict began should bring inflation down over time.
The Fed raised its benchmark on Wednesday to a range of 3.75% to 4%, its first increase since 2023 and a unanimous decision, while signalling more to come.
The ECB lifted its deposit rate to 2.5% last week.
The sequence concludes on Friday with the Bank of Japan, where markets expect a hike.
That would leave the Bank of England as the only major central bank to have stood still this week, though on Thursday’s evidence not by much.
Additional sources • AP
WASHINGTON, United States: The US Federal Reserve on Wednesday raised interest rates for the first time since 2023, defying President Donald Trump’s demand for cuts, as central bank chief Kevin Warsh stressed the need to combat inflation that has been “too high” for “too long.”
The Fed’s Federal Open Market Committee voted unanimously to raise rates by 25 basis points to between 3.75 and 4.00 percent, saying the rate hike would support a “timelier return” to its two-percent target for inflation.
Warsh, appointed by Trump, said the decision was a “serious” one, but needed to be taken.
“The plain fact is that inflation is too high, and has been for too long,” he told a press conference.
And Wednesday’s rate hike may not be the last — the vast majority of Fed policymakers indicated that at least one more rate hike was likely necessary before the end of the year, according to their Summary of Economic Projections.
US households and businesses have been battered by years of higher-than-target inflation, and prices have surged in the wake of Trump’s war on Iran, his signature tariff policies and the ongoing AI boom.
Trump has launched an unprecedented assault on the Fed’s independence since taking office, attempting to fire a Fed Governor and launching a criminal probe against Warsh’s predecessor in his quest for lower rates to spur economic activity.
The president’s Republican Party faces a stern test in upcoming midterm elections, with rival Democrats seeking to wrest control of both houses of Congress and economic issues front-and-center for voters.
Growing calls for hike
The Fed has held rates steady since January, choosing to wait to gauge the effects of the Iran war’s energy price shocks and to let the impact of tariffs on prices ripple through the economy.
Since July, however, a growing faction of policymakers had indicated a rate hike may be required to tame inflation, as the war grinds on and prices remained elevated.
On Friday, August’s consumer price index came in at 3.4 percent — unchanged from the month before, but still well above the Fed’s long-term two-percent target.
In its SEP, the Fed raised its forecast for its preferred gauge of inflation — the Personal Consumption Expenditures (PCE) price index — by 0.1 percentage points to 3.7 percent by year-end.
The Fed also raised its projection for GDP growth by year-end to 2.3 percent, up 0.1 percentage points.
‘Rather unfortunate’
US stock markets largely priced in Wednesday’s rate hike, but they were still down on the news — expected with any rate hike as equities become less attractive.
Yields on 10-year US Treasury bonds — which have surged in recent days as uncertainty on long-term inflation has spiked — were also up past the five-percent threshold.
Following the Fed’s announcement, White House spokesperson Kush Desai said the decision was “rather unfortunate” and that Trump had been clear that he wanted lower interest rates.
Warsh was named to his position after a contentious Senate confirmation process, where Democratic lawmakers accused him of being a “sock puppet” for Trump, which he denied.
So far, Trump has supported Warsh, claiming that the Fed chair wants lower rates and accusing the board of being “political.”
The Fed has a dual mandate to deliver maximum employment while keeping inflation to its long-term two-percent target.
It mainly achieves these goals by setting the key US interest rate — lower rates tend to spur economic activity but fuel inflation, and hiking them cools both activity and prices.
The Fed’s SEP showed that at least 12 of 18 policymakers who participated in the projection expected one more rate hike would be required before the end of the year.
Four policymakers expect two more rate hikes to be required.
Warsh has criticized the Fed’s policy of offering such projections in the past and did not participate in the previous iteration in June.
This projection also included only 18 policymakers, suggesting he had once again withheld his contribution.
Kevin Warsh has broken away from US President Donald Trump in his first Fed move, and he has done it with the entire committee behind him.
The Federal Open Market Committee lifted rates on Wednesday after holding them at 3.5% to 3.75% since December, ending a pause that had grown harder to justify as energy costs pushed prices higher.
Not a single member dissented in a unanimous 12-0 vote.
That matters because the pressure ran in both directions as three regional presidents had voted for a hike in July, while the White House spent months demanding cuts.
Nobody voted for either extreme.
At the time of writing, the market reaction to the decision has been fairly muted likely due to the fact that the hike was widely expected.
The Fed’s communication was as striking as its decision.
The statement ran to three short paragraphs, a fraction of the length markets are used to, with no forward guidance and no hedging.
“Inflation remains elevated,” it read, adding that “today’s policy action will support a timelier return to the Committee’s 2 percent goal.”
The word “timelier” carries an implicit admission that the return had been too slow.
Then a sentence the Fed almost never writes: “The Committee will deliver price stability.” Not seeks to, not is committed to. Will.
The economic assessment was also confident throughout.
Activity is “expanding at a solid pace”, domestic spending “has been resilient”, productivity growth is “strong” and capital investment “robust”, while job gains “have kept pace with the workforce”.
Uncertainty remains elevated, the Fed said, owing partly to “geopolitical developments”, its formulation for the Iran war.
By describing an economy in good health, the committee removed the argument that higher rates would damage growth, which is precisely the case US President Donald Trump has been making.
The decision had been building for months.
Three regional Fed presidents dissented in July in favour of an increase, the most in one direction since 2016, and several others said afterwards they were ready to move unless inflation eased which it did not.
The Fed’s preferred gauge, the personal consumption expenditures index, ran at 3.7% in both June and July, with core inflation at 3.3%. Before the Iran war sent fuel prices climbing, core stood at 3%.
Consumer prices held at 3.4% in August, but the monthly increase of 0.4% was the sharpest since May, evidence the energy shock is feeding through. Inflation has now been above the 2% target for more than five years.
Warsh had effectively committed himself at Jackson Hole in August, telling the symposium he “would be hard pressed to describe broad financial conditions as restrictive” and warning that unless underlying inflation moved to target “clearly and at sufficient speed”, the Fed had “work to do”.
Markets took him at his word as the CME’s FedWatch tool put the probability of a rate hike above 90% before today’s decision.
US President Donald Trump had spent months demanding the opposite, insisting the country should have the lowest interest rates in the world and choosing Warsh partly on the expectation he would deliver them.
Warsh himself said while campaigning for the job that rates could come down.
The treatment of his predecessor sharpened the stakes as Jerome Powell was publicly attacked for moving too slowly, and the US Justice Department opened a criminal investigation into testimony he gave to Congress.
Today’s decision could also have a restoring effect on the perceived independence of the Federal Reserve as an institution.
The technical details point to a Fed settling in at the new level.
The interest rate on reserve balances rises to 3.90% from Thursday, the primary credit rate to 4%, and standing repurchase operations will run at 4%. Seven regional reserve banks requested the discount rate increase.
The Fed’s new dot plot shows 12 of 18 officials expect another 0.25% hike by year-end, taking rates to 4.125%, while four see rates reaching 4.375%.
The hawkish signal extends well beyond 2026 as 14 officials see rates ending 2027 above today’s level, while the 2028 median stands at 3.9% versus 3.4% expected.
The longer-run rate also rose to 3.2%, suggesting officials increasingly believe neutral rates have moved higher while economists also expect more to follow.
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.
Frankfurt has tightened again.
The European Central Bank’s governing council lifted the deposit facility rate from 2.25% to 2.5% on Thursday. It is the second hike since 11 June, when the ECB moved for the first time in three years.
The ECB sets monetary policy for the eurozone through three key interest rates, with the deposit facility rate serving as its main policy benchmark.
The main refinancing rate was lifted to 2.65% and the marginal lending facility to 2.9%.
In its statement, the central bank noted that “the conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period,” while ensuring that “with today’s decision, the Governing Council remains well positioned to navigate the uncertainty caused by the conflict.”
The ECB staff projections continue to estimate that headline inflation will average 3% this year. However, it has revised up the expectations for 2027 and 2028 to 2.5% and 2.1% respectively, compared with June.
The decision follows an August inflation reading of 3.3%, up from 2.9% in July and the highest since September 2023.
Energy costs did nearly all the work, with energy inflation jumping to 14.3% from 10.3%, as fighting around the Strait of Hormuz kept crude supply constrained. The problem persists as Brent crude crossed $100 a barrel again on Wednesday due to renewed exchanges of fire between the US and Iran.
Underneath, the picture is calmer.
Core inflation, which strips out energy, food, alcohol and tobacco, actually fell to 2.4% from 2.5% in August, while services inflation, the component most sensitive to wages, dropped to 3% from 3.3%. There is still little sign that expensive energy is spreading into the rest of the economy.
That distinction has been central to the ECB’s own thinking.
In a paper published earlier this month, its economists found that adverse energy supply factors accounted for around 90% of the rise in energy inflation between January and May of this year.
“This time the energy supply shock dominates, while demand and public policy stimulus have minor roles,” the economists wrote, contrasting it with the 2021-22 surge that prompted a far more aggressive response.
The eurozone inflation average conceals a wide spread.
August inflation ran at 4.5% in Spain, 2.9% in Germany and 2.7% in France, three economies facing the same energy shock with markedly different outcomes.
Growth complicates matters further.
The bloc has held up better than expected, but resilience is not overheating, and even at 2.5% the deposit rate remains within the range the ECB considers neutral. Going further would mean deciding that policy must actively restrain the economy.
Christine Lagarde had signalled this move in July, when the council held rates but instructed staff to model oil and gas scenarios ahead of September.
“The burden of proof is on data,” Lagarde said then, adding that “the full inflationary impact of the energy shock has yet to play out.”
Thursday’s decision comes alongside fresh staff projections, though their cut-off date falls roughly two weeks before the meeting, meaning neither the latest leg higher in oil nor the surge in European government bond yields to 15-year highs will be reflected.
Attention now turns to Frankfurt’s peers.
The Federal Reserve will announce on 16 September and the Bank of Japan on the 18, with both expected to consider hikes of their own.
Meanwhile, the Bank of England will decide on 17 September and is expected to hold rates as it currently maintains a much higher benchmark than the rest at 3.75%.