At its meeting today, the Board decided to increase the cash rate target by 25 basis points to3.85 per cent.

While inflation has fallen substantially since its peak in 2022, it picked up materially in thesecond half of 2025. The Board has been closely monitoring the economy and judges that some of theincrease in inflation reflects greater capacity pressures. As a result, the Board considers thatinflation is likely to remain above target for some time.

Capacity pressures reflect, in part, the greater momentum in demand seen in recent months. Growth inprivate demand has strengthened substantially more than expected, driven by both household spendingand investment. Activity and prices in the housing market are also continuing to pick up. Financialconditions eased over 2025 and it is uncertain whether they remain restrictive. Credit is readilyavailable to both households and businesses and the effects of earlier interest rate reductions areyet to flow through fully to aggregate demand, prices and wages. More recently, the exchange rate,money market interest rates and government bond yields have risen following a rise in marketexpectations for the cash rate.

Various indicators suggest that labour market conditions remain a little tight and that they havestabilised in recent months, in line with the pick-up in momentum in economic activity. Theunemployment rate has been a little lower than expected and measures of labour underutilisationremain at low rates. Growth in the Wage Price Index has eased from its peak, but broader measures ofwages growth continue to be strong and growth in unit labour costs remains high.

There are uncertainties about the outlook for domestic economic activity and inflation and the extentto which monetary policy is restrictive. On the domestic side, if growth in demand is stronger thanexpected, and growth in the economy's supply capacity remains limited, it is likely to addfurther to capacity pressures. Uncertainty in the global economy remains significant but so far therehas been little or no depressing effect on the Australian economy; indeed, recent growth and trade inAustralia's major trading partners has surprised on the upside.

Decision

A wide range of data over recent months have confirmed that inflationary pressures picked upmaterially in the second half of 2025. While part of the pick-up in inflation is assessed to reflecttemporary factors, it is evident that private demand is growing more quickly than expected, capacitypressures are greater than previously assessed and labour market conditions are a little tight.

The Board judged that inflation is likely to remain above target for some time and it was appropriateto increase the cash rate target.

The Board will be attentive to the data and the evolving assessment of the outlook and risks to guideits decisions. In doing so, it will pay close attention to developments in the global economy andfinancial markets, trends in domestic demand, and the outlook for inflation and the labour market.The Board is focused on its mandate to deliver price stability and full employment and will do whatit considers necessary to achieve that outcome.

Today's policy decision was unanimous.

Source: RBA