The RBA delivered a unanimous 25bp hike tio take the cash rate back up to 3.85% and upgraded its inflation profile, with the SMP implying further tightening in 2026 even as the Bank kept guidance explicitly data dependent.
First rate hike since 2023 and after an easing cycle.
Summary:
RBA hiked and it was unanimous, citing a clear re-acceleration in underlying inflation in 2H25 and tighter capacity constraints
Guidance stayed open-ended: the Board stressed data dependence and uncertainty around how restrictive policy now is
The SoMP shifts hawkish: forecasts assume cash rate 3.9% by June and 4.2% by December, implying roughly two more hikes in 2026
Inflation track lifted even with higher-rate assumptions; headline CPI seen peaking mid-year as electricity rebates roll off
Growth near-term upgraded, but the profile fades further out; unemployment seen edging higher into 2027–28
The Reserve Bank of Australia delivered a unanimous policy tightening and paired it with a notably firmer set of forecasts, arguing that inflation momentum picked up materially in the second half of 2025 and that the economy is operating with greater capacity pressure than previously assessed.
In its post-meeting messaging, (decision Statement) the Bank kept its forward guidance deliberately flexible. Policymakers emphasised that future decisions will be guided by incoming data and an evolving assessment of the outlook, noting ongoing uncertainty around domestic activity, inflation dynamics and, crucially, the extent to which monetary policy is currently restrictive. That formulation reads as an attempt to justify action now without pre-committing to a fixed hiking sequence.
The tone in the accompanying Statement on Monetary Policy (SoMP) was the bigger signal. The RBA lifted inflation forecasts through the projection horizon and revised its growth view, describing the economy as further from balance and growing above potential in the near term. The Bank also flagged that some measures suggest financial conditions may have become somewhat accommodative, an important shift from prior communications that leaned more heavily on “restrictive” settings after last year’s rate cuts.
Forecast assumptions imply additional tightening ahead. The SMP projections are conditioned on a cash-rate track rising to around 3.9% by June and 4.2% by December, effectively building in roughly 40bp of additional hikes this year. The Bank’s argument is that higher rates should restore balance between demand and supply, particularly after private demand growth proved much stronger than expected in late 2025.
On the inflation details, the RBA acknowledged that part of the late-2025 inflation surprise reflected less persistent components such as food, travel and durable goods, but it judged that the overall pulse of inflationary pressure had strengthened, including via capacity constraints. Underlying inflation (trimmed mean) is seen lifting in the near term before trending lower only gradually, reaching the mid-2s by mid-2028,still above the target midpoint.
The growth outlook was revised up near term, reflecting stronger household consumption, dwelling investment and business investment. The RBA highlighted a sharp lift in business investment expectations through 2026, with data centre spending cited as one contributor, alongside stronger government spending and housing-related demand. Further out, however, growth forecasts were marked down into 2027 as tighter financial conditions bite.
Labour market language remained firm, with conditions still described as a little tight and stabilising in recent months. The RBA does not see a material near-term loosening, with unemployment projected to hover around the low-4% range before drifting higher later as rates rise.
For markets, the combination of a hike, a unanimous decision, and a forecast track that embeds further tightening is a cleanly hawkish package, tempered only by the Bank’s insistence that it is not locked into any particular path and will respond to how inflation and demand evolve from here.
Reserve Bank of Australia Governor Bullock will speak at 0430 GMT / 2330 US Eastern time
