The Reserve Bank of Australia raised the cash rate by +25 bps to 4.35% in March 2026, responding to elevated inflation risks driven by capacity pressures and higher energy costs.

• The Board increased the cash rate target to 4.35% (+25 bps), with an 8–1 vote, indicating broad support for tightening alongside limited dissent.
• Inflation picked up materially in H2 2025 and into early 2026, with capacity pressures and higher fuel and commodity prices contributing to renewed upward momentum.
• Higher fuel prices linked to the Middle East conflict are already adding to inflation, with firms beginning to pass through rising costs to goods and services prices, suggesting emerging second-round effects.
• Short-term inflation expectations have risen, reinforcing the assessment that inflation risks remain tilted to the upside and may persist above target.
• The updated baseline forecast sees underlying inflation peaking higher than previously expected before declining as demand growth slows and capacity pressures ease in response to tighter policy.
• Financial conditions have tightened, with higher money market rates, bond yields, and an appreciating exchange rate, though credit remains readily available to households and businesses.
• The outlook is subject to heightened uncertainty, with scenarios of prolonged conflict potentially leading to higher inflation and weaker growth through sustained energy price increases and reduced global demand.
• The Board emphasized that inflation is likely to remain above target for some time, justifying further tightening, while maintaining a data-dependent approach to future policy decisions.
• Statement on Monetary Policy - May 2026