The Reserve Bank has raised the cash rate target by 25 basis points to 4.10 per cent, warning that inflation could stay above its 2–3 per cent goal for longer as domestic capacity pressures build and higher fuel costs flow through the economy.
In a closely split decision, five members voted for the increase and four voted to hold the rate at 3.85 per cent, underlining uncertainty about how restrictive policy is and how quickly inflation will ease.
The bank said inflation has fallen a long way from its 2022 peak, but picked up “materially” in the second half of 2025, and recent data suggested part of that lift reflected tighter capacity pressures. It also pointed to the conflict in the Middle East, pushing fuel prices sharply higher, which, if sustained, would add to inflation. The board noted short-term inflation expectations had already risen and said it saw a “material risk” that inflation would remain above target longer than previously expected.
The RBA pointed to stronger momentum in demand late last year, with business investment running above expectations even as consumption was weaker than anticipated. It also said the labour market had tightened slightly, with unemployment a little lower than forecast and underutilisation still low. Housing prices and activity were described as having grown strongly over the past year, though price growth moderated at the start of 2026.
While financial conditions have tightened somewhat this year, the board said it was still unclear just how restrictive monetary policy is. Credit remains readily available to households and businesses, and the RBA noted the effects of interest rate reductions in 2025 are yet to fully flow through to demand, prices and wages.
The move follows an increase at the bank’s February meeting, when the cash rate was lifted to 3.85 per cent, after it had been cut in 2025.
In its statement, the RBA said global developments remain highly uncertain and could shift the outlook in either direction. A longer or more severe Middle East conflict could keep energy prices elevated, lifting near-term inflation and risking further effects if higher prices become embedded in expectations. But the bank also warned that prolonged uncertainty and higher prices could drag on growth in Australia’s trading partners and at home.
The board said it would be guided by incoming data and its evolving assessment of risks, including global markets, domestic demand, inflation and labour market conditions, and would “do what it considers necessary” to return inflation to target while supporting full employment.
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