The Reserve Bank of Australia’s Monetary Policy Board has decided to raise the cash rate target by 25 basis points, bringing it to 3.85 percent. The decision follows a meeting where the Board reviewed recent economic developments, including inflation trends and domestic demand.
According to the Board, “While inflation has fallen substantially since its peak in 2022, it picked up materially in the second half of 2025. The Board has been closely monitoring the economy and judges that some of the increase in inflation reflects greater capacity pressures. As a result, the Board considers that inflation is likely to remain above target for some time.”
The Board noted that private demand growth has been stronger than anticipated, driven by increased household spending and investment. Housing market activity and prices are also rising. Financial conditions eased over 2025, and credit remains accessible for households and businesses. Earlier interest rate reductions have not yet fully impacted aggregate demand, prices, or wages.
Labour market indicators suggest conditions remain somewhat tight and have stabilized recently alongside stronger economic activity. The unemployment rate is slightly lower than expected, with low rates of labour underutilization. While growth in the Wage Price Index has moderated from its peak, broader wage measures remain strong and unit labour costs continue to be high.
“There are uncertainties about the outlook for domestic economic activity and inflation and the extent to which monetary policy is restrictive,” the statement said. “On the domestic side, if growth in demand is stronger than expected, and growth in the economy’s supply capacity remains limited, it is likely to add further to capacity pressures.” The Board also acknowledged ongoing uncertainty in global markets but observed that recent growth among Australia’s major trading partners has exceeded expectations.
The decision was based on data showing that inflationary pressures increased notably during the latter half of 2025. “While part of the pick-up in inflation is assessed to reflect temporary factors, it is evident that private demand is growing more quickly than expected, capacity pressures are greater than previously assessed and labour market conditions are a little tight,” according to the statement.
“The Board judged that inflation is likely to remain above target for some time and it was appropriate to increase the cash rate target,” members said.
Looking ahead, “The Board will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions. In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market. The Board is focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome.”
Today’s policy decision was unanimous.
The Reserve Bank of Australia (RBA) serves as Australia’s central bank with responsibilities including monetary policy management aimed at controlling inflation within a set target range established since the 1990s (official website). The RBA also manages currency issuance, foreign reserves—including gold—and oversees financial system stability (official website). Michele Bullock has served as governor since September 18, 2023 (official website).
