The Reserve Bank of Australia (RBA) raised its cash rate by 25 basis points to 3.85% and maintained a hawkish bias due to persistent inflationary pressures. The RBA noted that inflation is likely to remain above target for some time, reflecting greater capacity pressures in the economy, note Charlie Lay and Moses Lim from Commerzbank.

RBA maintains hawkish stance

"RBA’s statement said “While inflation has fallen substantially since its peak in 2022, it picked up materially in the second half of 2025. The Board has been closely monitoring the economy and judges that some of the increase in inflation reflects greater capacity pressures."

"It highlighted that “A wide range of data over recent months have confirmed that inflationary pressures picked up materially in the second half of 2025.”"

"It acknowledged that part of this pick-up is due to temporary factors, but it also noted that “private demand is growing more quickly than expected, capacity pressures are greater than previously assessed and labour market conditions are a little tight.”"

"It highlighted that “inflation is likely to remain above target for some time and it was appropriate to increase the cash rate target.”"

"For 2026, RBA revised the GDP forecast to 1.8% (previous: 1.9%), trimmed mean CPI inflation to 3.2% (previous: 2.7%), and the unemployment rate to 4.3% (previous: 4.4%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)