Australia's central bank hiked its key interest rate on Tuesday, pointing to "sharply higher fuel prices" driven by the US-Israel war on Iran.

The Reserve Bank of Australia (RBA) became one of the first major central banks to lift rates in response to the turmoil, raising its key cash rate 25 basis points to 4.1 percent.

Global oil prices have surged more than 40 percent since the US and Israel began their strikes on February 28, leading Iran to choke off access to the Strait of Hormuz, through which a fifth of global oil and gas passes.

Many economists had warned that a protracted war could fuel an inflation shock similar to that seen after the start of the conflict in Ukraine in 2022.

The RBA said "the conflict in the Middle East has resulted in sharply higher fuel prices, which, if sustained, will add to inflation".

"Higher prices and prolonged uncertainty may cause growth to be lower in Australia's major trading partners and also in Australia," the bank said in a statement.

Australia is heavily reliant on fuel imports from Asia, with many people accustomed to driving long distances for work or leisure. (AFP)



Edited by Thomas McAlinden