By Stuart Condie


SYDNEY--The Reserve Bank of Australia said its third straight interest-rate increase gives it time to weigh the Iran conflict's impact on the local economy, signaling it could pause tightening at a time of heightened uncertainty.

The central bank raised the official cash rate to 4.35% at its May 5 board meeting, delivering a third consecutive 25 basis-point increase in an effort to dampen spending amid rising inflationary pressures.

Minutes of the meeting released Tuesday showed members worried that factors including inflation expectations meant that a cash rate of 4.10% at the time of the meeting was less restrictive than the same level had been a year earlier.

The board voted 8-1 to raise the rate again. On Tuesday, the RBA reiterated that future decisions would be guided by economic data.

"Members judged that, while it was still uncertain, financial conditions would probably be somewhat restrictive after this decision," the minutes said.

"They therefore agreed that the decision would give the board space to see how the conflict in the Middle East develops and Australian households and businesses respond."

Announcing the hike, the RBA board warned that fuel prices, which have soared since the U.S. and Israel attacked Iran in late February, are adding to inflation and are likely to increase prices for goods and services.

Also underpinning the RBA's decision to tighten policy further were signs the economy remains fundamentally strong despite growing shocks.

Household spending rose 1.6% in March from February, its strongest increase in 30 months. While the result was driven by a 32% surge in fuel prices over the month, spending in other areas was also strong.

"Nominal spending at petrol stations had increased sharply but there did not yet appear to be an offsetting decline in other types of spending," the minutes said. Some economists expect the RBA to raise the cash rate twice more in 2026.

Ahead of the release of the minutes, data from Australian market operator ASX suggested that investors anticipate a pause before at least one more increase.


Write to Stuart Condie at stuart.condie@wsj.com


(END) Dow Jones Newswires

05-18-26 2232ET