Cash Rate Decision
Key Takeaways
Cash Rate Increased: The RBA has lifted the cash rate by 25 basis points to 4.35 per cent, reflecting heightened concerns about inflation and the economic outlook.
Inflation Pressures Intensify: Inflation rose materially in the second half of 2025, with further upward pressure from higher fuel and commodity prices linked to the ongoing conflict in the Middle East and emerging second-round price effects.
Uncertainty Elevated: While financial conditions have tightened, credit remains accessible. However, risks to both inflation and economic activity have increased, with the outlook highly sensitive to global developments.
The RBA has increased the cash rate to 4.35 per cent in response to a renewed and more persistent inflationary environment. Inflation accelerated in the latter half of 2025, with recent data confirming that stronger-than-expected capacity pressures across the economy have contributed to this trend.
Global factors are also playing a significant role. Ongoing conflict in the Middle East has driven a sharp rise in fuel and commodity prices, which are already feeding into domestic inflation, with underlying inflation peaking higher than anticipated. In response to these cost pressures, some firms are beginning to lift prices, while short-term inflation expectations have also edged higher.
The RBA Board’s updated forecasts suggest that, even under a baseline scenario in which geopolitical tensions ease and fuel prices decline, underlying inflation will continue to rise at a higher rate than previously anticipated, then gradually moderate as tighter monetary policy dampens demand.
What Impacted the RBA’s Decision
The decision to raise the cash rate reflects a combination of domestic and global inflation risks. Capacity constraints within the Australian economy remain more pronounced than previously assessed, contributing to persistent price pressures. At the same time, higher energy prices stemming from geopolitical conflict are adding to near-term inflation and risk, flowing more broadly into goods and services. The RBA Board also noted early signs of second-round effects, with businesses adjusting prices in response to sustained cost increases.
Financial conditions have tightened over the year, with increases in market interest rates and bond yields, alongside an appreciation in the exchange rate. However, the continued availability of credit to households and businesses has supported ongoing economic activity.
Moving Forward
The RBA has emphasised that uncertainty around the outlook has increased materially. A prolonged or more severe conflict in the Middle East is likely to further elevate global energy prices, pushing inflation higher and potentially slowing economic growth both globally and domestically.
The Board will continue to closely monitor incoming data, including trends in inflation, domestic demand, labour market conditions and global economic developments. Having now raised the cash rate three times, monetary policy is considered well-positioned to respond to evolving conditions.
Today’s decision was by a majority, with eight members voting to increase the cash rate to 4.35 per cent and one member voting to hold at 4.10 per cent. The RBA reaffirmed its commitment to achieving price stability and full employment and will take further action as necessary to meet these objectives.
The REIV will continue to monitor developments closely, noting that interest rate settings remain a key driver of borrowing capacity, investment decisions and mortgage servicing across the real estate sector.