Key Moments
- The Reserve Bank of Australia increased its cash rate by 25 basis points to 3.85% and kept a hawkish policy bias.
- The RBA indicated inflation is expected to stay above its target for an extended period amid stronger-than-expected private demand and capacity pressures.
- For 2026, the RBA lowered its GDP forecast to 1.8%, raised its trimmed mean CPI projection to 3.2%, and nudged its unemployment forecast down to 4.3%.
RBA Delivers 25 bps Hike and Keeps Tightening Bias
The Reserve Bank of Australia (RBA) lifted its cash rate by 25 basis points to 3.85%, while maintaining a clearly hawkish tone in response to ongoing inflation concerns. According to analysis from Charlie Lay and Moses Lim at Commerzbank, the central bank remains focused on the risk that inflation will stay elevated, reflecting increased capacity constraints in the Australian economy.
Policy Statement Highlights Renewed Inflation Pressures
Commerzbank noted that the RBA emphasized the recent resurgence in price pressures. The 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.”
The RBA further stressed that “A wide range of data over recent months have confirmed that inflationary pressures picked up materially in the second half of 2025.”
While the central bank recognized that certain elements behind the latest inflation rise are temporary, it also underlined structural demand and labor dynamics: 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.”
Reaffirming its anti-inflation stance, the RBA “highlighted that “inflation is likely to remain above target for some time and it was appropriate to increase the cash rate target.”
Updated 2026 Projections: Growth Softer, Inflation Higher
Against this backdrop, the RBA adjusted its macroeconomic projections for 2026. The central bank now expects slower economic growth alongside higher underlying inflation and a slightly lower unemployment rate.
| Indicator (2026) | New RBA Forecast | Previous RBA Forecast |
|---|---|---|
| GDP growth | 1.8% | 1.9% |
| Trimmed mean CPI inflation | 3.2% | 2.7% |
| Unemployment rate | 4.3% | 4.4% |
Lay and Lim highlighted that these revisions underscore the RBA’s concern that inflation will remain above target for some time despite only modestly softer growth expectations.
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