The Reserve Bank has lifted the cash rate by 25 basis points to 4.35 per cent, marking its third increase this year as inflation pressures intensify.
The Board points to a sharp pickup in inflation in the second half of 2025, with recent data showing capacity constraints in the economy are persisting. Added to that, escalating conflict in the Middle East has driven fuel and commodity prices higher, feeding directly into inflation and raising the risk of broader price increases across goods and services.
The Bank says some businesses are already moving to pass on higher costs, while short-term inflation expectations have also edged up. Updated forecasts now show inflation peaking higher than previously expected, before easing as demand slows under tighter monetary policy.
Financial conditions have already tightened, with higher bond yields and money market rates, though credit remains available. The outlook, however, is increasingly uncertain. A prolonged conflict could push energy prices even higher, lifting inflation further while weighing on global and domestic growth.
The Board says inflation is likely to remain above target for some time, with risks skewed to the upside. In that context, it judged a rate increase was warranted.
Looking ahead, the Bank says it will remain data dependent, closely monitoring global developments, domestic demand and the labour market, as it works to bring inflation back to target while maintaining employment.
