The Australian Central Bank raised its policy rate to 4.6% on Tuesday, the highest level in 15 years, as the country attempts to curb inflation driven up by conflicts in the Middle East.

This time, the cash interest rate was raised by 25 basis points, in line with the expectations of economists surveyed by Reuters.

The Reserve Bank of Australia has raised interest rates four times so far this year, increasing them by a total of 100 basis points, as inflation remains stubborn.

In the statement, the RBA stated that some of the upside risks mentioned at its August meeting have now begun to materialize.

"The conflict in the Middle East has escalated, and global energy prices are now much higher than previously assumed," the central bank wrote, adding that demand related to artificial intelligence is driving up the prices of technology-related goods rapidly.

The RBA also stated that it will "continue to do what it deems necessary" to curb inflation, including further raising policy interest rates.

After the policy decision was announced, the S&P/ASX 200 index and the Australian dollar remained relatively stable.

Australian inflation remained above the target range of 2% to 3% throughout 2026, reaching a high of 4.6% in March. The latest inflation rate for the country in July was 3.5%, which is higher than expected. The data for August is scheduled to be released on Wednesday.

A report from Bank of America last week stated that inflation is accelerating rather than returning to target levels. "July CPI is the clearest evidence of this shift, and it has also exacerbated the upward trend in core inflation over the past few months."

Bank of America also stated that there is evidence of a second-round effect due to energy costs, which reinforces the risk that inflation may become entrenched.

"The Middle East conflict remains unresolved, and there are scenarios where inflation could be higher than expected, and economic activity could be lower than anticipated," writes the Reserve Bank of Australia.

As interest rates rise, the central bank has previously warned that the country's economic growth could slow down. Australia's economy grew by 2.1% in the second quarter, lower than the 2.5% growth rate in the first quarter.