Bullock details RBA rate hike rationale and economic outlook
Reserve Bank of Australia Governor Michele Bullock explained the rationale behind the recent cash rate increase to 3.85 percent. In an opening statement to Parliament, she also provided an outlook on inflation, employment, and updates on payments and cash distribution.
Inflation's stubborn return prompts RBA tightening
The Monetary Policy Board recently increased the cash rate target by 25 basis points to 3.85 percent, responding to a material pick-up in inflation during the second half of 2025. Underlying (trimmed mean) inflation rose to 3.4 percent over the year to the December quarter 2025, after briefly being within the 2-3 percent target range.
Headline inflation reached 3.6 percent.
This increase was broad-based, affecting services, retail goods, and new home building costs.
The RBA's outlook now projects inflation returning to target only by mid-2027, driven by eased financial conditions, stronger global growth (partly due to AI investment), and robust domestic demand.
The Board judged that excess demand was pushing against the economy's supply capacity, necessitating tighter monetary policy to dampen growth and rebalance the economy.
Despite challenges for mortgage holders, Bullock affirmed the decision as crucial for achieving low and stable inflation, which benefits all Australians.
Beyond rates: Payments, cash, and RBA reform
Beyond monetary policy, Governor Bullock updated the Committee on the RBA's responsibilities in the payments system and cash distribution.
The RBA is finalizing its review of surcharging and merchant card payment costs, with conclusions expected by the end of March 2026. Following this, a consultation on prioritised issues under the amended Payment Systems (Regulation) Act 1998 will occur in mid-2026, expanding the RBA's remit to mobile wallets and 'buy-now, pay-later' providers.
The RBA also experienced a system issue on January 27, disrupting payment and property settlement services, for which a full review will be published before the end of February.
Cash remains a critical part of the payments system, with the RBA committed to supporting its long-term availability, working with industry to ensure a sustainable distribution system.
Furthermore, Bullock highlighted progress on the RBA Review objectives, noting the establishment of three boards (Governance, Monetary Policy, Payments System) since March 2025, significantly reforming the RBA's oversight and operations.