The Reserve Bank of Australia has lifted the cash rate by 25 basis points to 4.1%, citing renewed inflation pressures and rising risks to the economic outlook.
RBA Governor Michele Bullock has revealed a majority of board members agreed to a rate hike, with the vote being a 5-to-4 decision.
"It will be much worse if inflation gets built into the fibres and then we will see the costs of everything going up – and that will be a much worse outcome," Bullock says.
While inflation has eased significantly from its 2022 peak, the RBA said price growth picked up in the second half of 2025 being 3.60%, with capacity constraints and a recent surge in fuel prices linked to conflict in the Middle East expected to place additional upward pressure on inflation.
The Board warned these factors could see inflation remain above target for longer than previously anticipated.
A range of recent data has confirmed that inflationary pressures strengthened through the second half of 2025, reinforcing concerns that price growth may prove more persistent than previously expected.
While some of the increase is believed to reflect temporary factors, the Reserve Bank said the labour market has tightened slightly and capacity constraints across the economy appear greater than earlier estimates suggested.
At the same time, ongoing uncertainty surrounding developments in the Middle East could place further upward pressure on both global and domestic inflation if current conditions persist.
Australia’s cash rate is now at its highest point since April 2025.
