The Reserve Bank of Australia raised its benchmark rate for the first time since November 2023 as inflation picked up materially.
The policy board governed by Michele Bullock decided to lift the cash rate target by 25 basis points to 3.85 percent.
“The Board judged that inflation is likely to remain above target for some time and it was appropriate to increase the cash rate target,” the bank said in a statement.
Policymakers said they are focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome.
The board observed that inflationary pressures picked up materially in the second half of 2025.
Although the recent pick-up in inflation was driven by temporary factors, private demand is growing more quickly than expected, capacity pressures are greater than previously assessed and labor market conditions are a little tight, they noted.
In its latest Statement on Monetary Policy, the RBA raised its near-term inflation and economic outlook.
For the year ending June 2026, the bank forecast an economic growth of 2.1 percent, up from the prior estimate of 1.9 percent. Inflation is projected to rise to 4.2 percent compared to 3.7 percent estimated previously.
The bank lowered its unemployment rate outlook for the year ending June 2026 to 4.3 percent from 4.4 percent.
Overall, the level of demand in the economy is expected to come into balance with potential supply by the end of the forecast period, with inflation projected to remain above the target range for some time.
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