At a media conference, Reserve Bank of Australia (RBA) Governor Michele Bullock explained the board’s decision to raise the cash rate target by 25 basis points to 4.85%. The fifth increase of 2026 addresses domestic capacity pressures and the risk that persistent inflation becomes embedded in pricing decisions, rather than the direct impact of higher global oil prices. Domestic capacity constraints have contributed more to inflation than previously assessed. Weak productivity has limited the economy’s ability to expand without generating inflation, while stronger than expected investment, including in data centers, has added to demand. Tighter policy also seeks to limit businesses’ ability to pass higher fuel costs into other prices. Updated forecasts show headline and underlying inflation returning to the 2.5% midpoint of the 2% to 3% target range in mid-2028. Spending has slowed, house prices have fallen and labor market conditions have eased, but further slowing is needed to bring demand and supply into balance. The decision passed by six votes to three. Members favoring a hold placed greater weight on downside risks and wanted more data on the effects of earlier increases, which can take about 12 months or longer to emerge fully. Bullock cautioned that removing an explicit reference to further tightening did not signal a pause or rule out additional increases.
RBA raises cash rate by 25 basis points to 4.85% to curb domestic inflation pressures
The Reserve Bank of Australia raised its cash rate target by 25 basis points to 4.85% in a 6-3 vote, its fifth increase of 2026. Governor Michele Bullock emphasized domestic capacity constraints and inflation expectations as the reasons for tightening, with forecasts showing inflation returning to the target midpoint in mid-2028. She left further rate increases open while acknowledging downside risks and the delayed effects of earlier tightening.