- Decision
- Raise
- Rate change
- 25 bps
- cash rate
- 3.85%
The Reserve Bank of Australia’s Monetary Policy Board raised the cash-rate target by 25 bp to 3.85 % on 3 February 2026, citing a material resurgence of inflation in the second half of 2025 as stronger-than-expected private demand, tight labour conditions and rising capacity pressures threaten to keep consumer-price growth above the 2–3 % target band for an extended period. After trimming the rate by a cumulative 75 bp between February and August 2025 and then holding it at 3.60 % through December, the Board has now reversed part of that easing. No changes were announced to the policy operating framework. Headline and underlying inflation have eased sharply from their 2022 peaks but both accelerated in recent quarters amid firmer household consumption, robust investment and a renewed upswing in housing prices; the Wage Price Index has cooled yet broader wage measures and unit labour costs remain elevated while unemployment has been slightly lower than expected. Financial conditions, which loosened over 2025, are viewed as possibly no longer restrictive, with exchange rates, money-market rates and government bond yields rising alongside higher market expectations for policy tightening. External risks persist, but resilient growth among key trading partners has so far cushioned the domestic economy. The Board pledged to remain “attentive to the data”, focusing on global developments, domestic demand, inflation and labour-market trends, and stated it will act as needed to achieve its mandates of price stability and full employment.
Rate evolution
From July 2025 to August 2026, the Reserve Bank of Australia’s cash rate target rose by a net 50 basis points to 4.35%, after an August cut and a pause through December gave way to three consecutive hikes from February, before the Board left the rate unchanged on 16 June and 11 August 2026. That early easing and the ensuing hold reflected substantial disinflation, with underlying inflation near the midpoint of the 2–3% range, while private demand recovered only gradually and the Board weighed weak productivity, high unit labour costs, tight labour conditions and elevated global uncertainty. By late 2025, however, the Board said underlying inflation had picked up, private demand and housing were strengthening and financial conditions had eased, shifting its language from more balanced inflation risks to a more cautious assessment of persistence and upside risk.
In subsequent decisions, it judged that stronger-than-expected private demand, greater capacity pressures, a tight labour market and fuel price increases linked to the conflict in the Middle East were likely to keep inflation above target for some time, with higher inflation expectations and possible second-round effects tilting risks to the upside despite heightened uncertainty and the possibility of weaker activity. Holding the cash rate target at 4.35% in June, the Board said headline and underlying inflation were still too high and that the disruption to global oil supply was adding to inflation and passing through to other prices, but it also noted tighter financial conditions, signs consumer spending was slowing as expected, a shift in housing market momentum and a higher-than-expected unemployment rate in April, and judged it appropriate to assess the effects of earlier increases and the oil supply disruption while remaining prepared to raise the cash rate target further if required. In August, the Board again held the rate at 4.35%, judging monetary policy somewhat restrictive and the economy to be slowing as expected, while noting that headline inflation remained too high, trimmed mean inflation was elevated and little changed, and capacity pressures and higher energy costs were likely to keep inflation high for some time, with upside risks warranting a further increase if they materialised.