RBA raises cash rate to 4.35 percent
The Reserve Bank of Australia's Monetary Policy Board increased the cash rate target by 25 basis points to 4.35 percent today. The decision was made by majority, with eight members voting for the hike.
Inflationary pressures intensify
The Board's decision follows a material pick-up in inflation during the second half of 2025, with recent data confirming increased capacity pressures within the economy.
Furthermore, the ongoing conflict in the Middle East has led to sharply higher fuel and related commodity prices, directly contributing to inflationary pressures.
The RBA observes early signs that many firms facing these rising costs are now looking to increase prices for their goods and services.
Short-term measures of inflation expectations have also risen, indicating a broader concern about future price levels.
The Bank has updated its forecasts to reflect these developments, projecting underlying inflation to peak higher than previously expected, even under a baseline scenario where the conflict is resolved soon and fuel prices decline.
Uncertain outlook, firm resolve
Financial conditions have tightened this year, marked by rising money market interest rates, government bond yields, and an appreciating exchange rate, though credit remains readily available.
The outlook for domestic economic activity and inflation is subject to materially heightened uncertainties.
The Board noted plausible scenarios where prolonged conflict could lead to higher inflation and lower economic activity than its baseline forecast, particularly if global energy prices rise further and cost increases are passed through, embedding into longer-term inflation expectations.
Given these considerations, the Board assessed that inflation is likely to remain above target for some time, with risks tilted to the upside.
The Board will remain attentive to data, global developments, domestic demand, and the labour market, affirming its commitment to price stability and full employment.