RBA interest rates: Reserve Bank hikes cash rate to 4.6%, the highest level since 2011

The Reserve Bank has lifted its key interest rate to 4.6%, its highest level since 2011, from 4.35%.

The widely expected fourth increase to the cash rate this year will add to repayment costs for millions of mortgage holders across the country.

Data to be released on Wednesday is expected to show underlying inflation rising at an annual pace of 3.6% for the third month running in August, well ahead of the RBA’s target range of 2% to 3%.

The RBA governor, Michele Bullock, has warned workers and businesses could lift their prices and wage demands as they start to expect persistent high inflation.

The treasurer, Jim Chalmers, said the US war on Iran, not government spending, was to blame for inflation, speaking to Channel Seven on Tuesday morning.

“When you see what’s happening with global oil prices, when you see what’s happening with the re-escalation of the war in the Middle East, obviously, factually, that is one of the big drivers of that inflation,” Chalmers said.

Before the decision, markets were predicting a further hike by February and more than a 50% chance of another by mid-2027.

Bullock will speak at 3.30pm AEST in Sydney to explain the decision.