The Reserve Bank of Australia Board raised the cash rate target by 25 basis points to 4.60%, its fourth increase in 2026, as persistent domestic capacity pressures and mounting external cost shocks threaten to keep inflation above target for longer. Governor Michele Bullock said higher rates were needed to slow demand and prevent elevated inflation expectations from becoming embedded in price setting. Domestic spending and investment have exceeded expectations, productivity growth remains weak and the labor market is still slightly tight. At the same time, renewed escalation in the Middle East has lifted oil and other input costs, while the global artificial intelligence investment boom is increasing demand and raising software and commodity prices. Underlying inflation has remained around 3.5% for six months, about 1 percentage point above the midpoint of the 2% to 3% target. The Board considered holding the cash rate or raising it by 25 basis points and remains prepared to increase rates again if needed. Bullock said financial conditions are restrictive and the four increases in 2026 may prove sufficient, although their full effects could take 12 to 18 months to emerge. A recession is not the central scenario, but a loss of control over inflation expectations could require a sharper economic slowdown.
Reserve Bank of Australia raises cash rate by 25 basis points to 4.60% as inflation risks intensify
The Reserve Bank of Australia raised the cash rate by 25 basis points to 4.60%, citing persistent domestic capacity pressures and rising costs from the Middle East conflict and artificial intelligence investment boom. The Board may raise rates again if needed, although the full effect of its four 2026 increases could take 12 to 18 months to emerge. A recession is not its central scenario.