- Decision
- Raise
- Rate change
- 25 bps
- cash rate
- 4.1%
The Reserve Bank of Australia’s Monetary Policy Board voted 5-4 to lift the cash-rate target by 25 bp to 4.10 percent, arguing that the renewed rise in inflation during the second half of 2025, emerging capacity strains, higher fuel costs from the Middle-East conflict and firmer short-term inflation expectations pose “material” upside risks to the outlook. After two 25 bp cuts between May and August 2025 and a 25 bp hike in February 2026, the policy rate is now back at its early-2025 level of 4.10 percent. The implementation framework is unchanged, but the Bank notes that money-market rates, government bond yields and the AUD have all risen, even as credit remains readily available to households and businesses. Domestically, inflation is still well above target, private demand and business investment have out-paced expectations, the unemployment rate has edged lower and unit labour-cost growth has moderated, while housing prices continued to rise—albeit at a slower pace early in 2026. Externally, the Middle-East conflict has driven up global energy prices and could both lift global inflation and weigh on growth in Australia’s major trading partners. The Board will “pay close attention” to global developments, domestic demand, inflation and labour-market trends and stands ready to adjust policy to deliver 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.