- Decision
- Raise
- Rate change
- 25 bps
- cash rate
- 4.35%
The Reserve Bank of Australia’s Monetary Policy Board raised the cash-rate target by 25 bp to 4.35 percent at its 5 May meeting, judging that a recent acceleration in inflation—driven by tighter domestic capacity, sharply higher fuel and other commodity prices stemming from the Middle East conflict and a lift in short-term inflation expectations—will keep price increases above target for an extended period and that risks remain skewed to the upside. After cutting the policy rate by a cumulative 50 bp to 3.60 percent between May and August 2025 and holding it through year-end, the Board has now delivered three consecutive 25 bp hikes since February 2026. Financial conditions have already tightened this year as money-market rates and government bond yields climbed and the Australian dollar appreciated, although credit remains readily available to households and businesses. The Bank’s updated baseline sees underlying inflation peaking higher than envisaged in February before easing as demand slows, yet it warns that a protracted or deeper regional conflict could further boost energy costs, lift inflation and curb growth at home and in key trading partners. The Board will continue to monitor global developments, domestic demand trends, inflation and labour-market conditions and says policy is well positioned to respond as needed to achieve its price-stability and full-employment mandate.
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.