ISTANBUL

The Reserve Bank of Australia increased its policy interest rate by 25 basis points to 4.1% on Tuesday, the highest level since April 2025.

"While inflation has fallen substantially since its peak in 2022, it picked up materially in the second half of 2025," the bank said.

The bank said some of the increase in inflation reflects greater capacity pressures; "In addition, the conflict in the Middle East has resulted in sharply higher fuel prices, which, if sustained, will add to inflation."

The bank also stated that financial conditions have tightened a little in 2026, but the extent to which monetary policy is restrictive is uncertain.

It added: "Globally, the conflict in the Middle East poses substantial risks in both directions.

"A longer or more severe conflict could put further upward pressure on global energy prices; this will push up near-term inflation and could also increase inflation further out if it impairs supply capacity or price rises get built into longer term inflation expectations."

It noted that higher prices and prolonged uncertainty may cause growth to be lower in Australia’s major trading partners and also in Australia.