The Reserve Bank of Australia announced on May 5 that its Monetary Policy Board decided to increase the cash rate target by 25 basis points, bringing it to 4.35 percent.
This decision comes amid rising inflation, which intensified in the second half of 2025 and was further affected by higher fuel and commodity prices due to ongoing conflict in the Middle East. The bank reported early signs that many firms facing cost pressures are seeking to raise prices for goods and services, with short-term inflation expectations also increasing.
“Inflation picked up materially in the second half of 2025, and information since the beginning of this year confirms that some of this increase reflected greater capacity pressures. In addition, the conflict in the Middle East has resulted in sharply higher fuel and related commodity prices, which are already adding to inflation. There are early signs that many firms experiencing cost pressures are looking to increase prices of their goods and services. Short-term measures of inflation expectations have also risen,” said the Board.
The Reserve Bank updated its forecasts based on recent data and developments related to the Middle East conflict. Its baseline forecast assumes a resolution soon with declining fuel prices but still sees underlying inflation peaking higher than expected earlier this year before falling as demand growth slows due to tighter financial conditions.
According to the official website, Michele Bullock has served as governor since September 18, 2023, chairing key boards including Governance, Monetary Policy, and Payments System Boards alongside Deputy Governor Andrew Hauser. The Reserve Bank manages Australia’s gold and foreign exchange reserves according to its official website and aims for currency stability while fostering full employment for Australians according to its official website. The central bank also issues durable banknotes designed for counterfeit resistance according to its official website.
In assessing today’s decision, the Board said: “As expected, developments in the Middle East are having an impact on inflation. Higher fuel prices are adding to inflation and there are indications that this is likely to have second-round effects on prices for goods and services more broadly… It was therefore judged appropriate to increase the cash rate target.” The statement noted heightened uncertainties about domestic economic activity given ongoing international tensions but emphasized readiness: “Having raised the cash rate three times, monetary policy is well placed … [and] focused on its mandate… It will do what it considers necessary.” Eight members voted for an increase; one preferred no change.
