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Geopolitics · Inflation · Interest Rates · RBA
Reserve Bank of Australia Assistant Governor Christopher Kent warned that a prolonged Middle East conflict will cause greater economic damage and risks dislodging inflation expectations, necessitating central bank action to prevent a surge in energy prices from leading to extended inflationary pressures.
Kent stated in a Sydney speech that the Middle East conflict has tightened financial conditions and poses a significant supply shock risk to inflation. The RBA recently raised interest rates for a second consecutive meeting to 4.1% due to persistently high inflation, even before the Iran war disrupted global oil trade and caused petrol prices to surge to record highs in Australia.
This tightening reversed two of the three rate cuts implemented in 2025. Kent noted that the assessment of monetary policy restrictiveness became less clear following the 2025 rate reductions and a 20 to 30 basis point rise in various model estimates of the neutral rate.
The central bank previously considered the post-pandemic peak of 4.35% in interest rates to be restrictive, aiming to slow demand, as reported by Reuters.
RBA Warns Middle East War Threatens Inflation, Growth(current)
