The Reserve Bank of Australia has lifted the cash rate by 25 basis points to 3.85 per cent, adding to pressure on households and businesses.

While the move was widely expected by markets and most economists, the Reserve Bank says inflation risks remain too high to be comfortable.

The RBA said inflation “picked up materially” in the second half of 2025. Governor Michele Bullock told a press conference:

“Based on the data we have seen and the conditions here and around the world, the board now thinks it will take longer for inflation to return to target and this is not an acceptable outcome.”

The rate rise reflects concern that inflation will not return to the RBA’s 2-3 per cent target range until June 2027, according to the bank’s updated forecasts also released today.

Stronger than expected economic growth means capacity pressures are rising and keeping inflation higher than expected. Progress could stall unless interest rates are pushed a little higher.

It was the first rate increase since November 2023, and followed three cuts in 2025 when inflation was cooling.

In the lead-up to the meeting, there appeared to be a gap between market expectations and the RBA’s own comments. Markets and many economists focused on the latest inflation data, which showed a renewed uptick,........

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