Australia’s central bank raised interest rates for a second straight month, warning that Middle East tensions and persistent inflation could keep price pressures elevated.

Australia's central bank raised interest rates for the second consecutive month, warning that rising worldwide risks and persistent domestic inflation might keep price pressures high. The Reserve Bank of Australia (RBA) partially reversed last year's rate reduction by raising its standard cash rate by 25 basis points to 4.1 percent the highest level in ten months.

The decision was made at the end of the RBA's March policy meeting in response to growing concerns that inflation risks were increasing rather than decreasing. Policymakers believe that overall uncertainty, particularly the escalating tensions in the Middle East and the consequent spike in oil prices, may further complicate the inflation picture.

A crucial week for key central banks around the world began with this move. The current geopolitical confrontation involving U.S. and Israeli raids on Iran has caused an oil shock that could change expectations for monetary policy globally even if the U.S. Federal Reserve and the European Central Bank are generally expected to keep rates unchanged for the time being.

Economic data from Australia also strengthened the argument for stricter regulations. The RBA's goal range of between 2 and 3 percent is still exceeded by inflation and there is still a high demand for workers in the labor market.

The actual vote was remarkably close. The RBA board approved the rate hike in a 5-4 vote, making it the most closely disputed decision since the central bank began releasing voting results last year. Later Governor Michele Bullock clarified that the argument was more about timing than the overall course of policy.

Some board members advocated waiting until May to collect new economic data and assess the impact of the Middle East crisis. However, the majority came to the conclusion that postponing action might let inflationary pressures expand across the economy.

The decision was met with a moderate response from the financial markets. While government bond futures partially recovered their earlier losses, the Australian dollar slightly increased. With forecasts that the cash rate might reach 4.35 percent by August if inflation threats continue, investors are now factoring in a 40% probability of another rate hike in May.