The Reserve Bank’s board increased its cash rate to 3.85% from 3.6%, according to a statement, taking back one of the three reductions it delivered last year. In its first meeting of 2026, the nine-member committee opted to tighten policy unanimously, with Governor Michele Bullock due to hold a press conference at 3:30 pm in Sydney.
“A wide range of data over recent months has confirmed that inflationary pressures picked up materially in the second half of 2025,” the rate-setting board said in the statement. “The board judged that inflation is likely to remain above target for some time.”
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The Australian dollar extended an early gain to trade around 70 US cents while the yield on policy-sensitive three-year bonds jumped as much as 10 basis points as traders cemented bets a further RBA rate hike this year. Swaps markets priced a two-thirds chance the next move will be by June, up from less than a 50% chance prior to the decision. Traders see the hike occurring by August.
The RBA has been wrong-footed by a regathering of price strength in recent months, led by services and housing costs, against the backdrop of a still-tight labour market. Australia last year recorded one of the shortest and shallowest easing cycles in the developed world.
The RBA raised forecasts for inflation, economic growth and employment for this year despite an assumption of two rate hikes, according to its quarterly Statement on Monetary Policy. The trimmed mean figure, which excludes volatile items, is now seen staying above the 2-3% target range this year and doesn’t hit the midpoint of the band through end-2027.
The RBA operates under a dual mandate that aims for inflation at the 2.5% midpoint of its target range while trying to keep the economy at maximum sustainable employment.
