Cash Rate Decision
Key Takeaways
Cash Rate Unchanged: The RBA has lifted the cash rate by 25 basis points to 3.85 per cent, marking a tightening of monetary policy.
Inflation Is Growing: While inflation remains well below its 2022 peak, the RBA confirmed that underlying inflation picked up materially in the second half of 2025, reflecting growing capacity pressures across the economy.
Housing Is a Driver: Private demand has strengthened more than expected, supported by household spending and business investment. Housing market activity, prices and credit availability continue to rise, indicating that earlier rate reductions are still feeding through to the economy.
The RBA has increased the cash rate to 3.85 per cent, responding to indicators that inflationary pressures have re-emerged. Although inflation has fallen significantly since 2022, the RBA Board noted a material pick-up in the second half of 2025. While some of this reflects temporary factors, capacity pressures have become more pronounced, suggesting inflation is likely to remain above target for some time.
Economic momentum has strengthened further. Private demand has grown substantially more than expected, driven by both household consumption and business investment. Housing market activity and prices continue to pick up, while financial conditions eased through 2025 and may no longer be clearly restrictive. Credit remains readily available to households and businesses, and the full effects of earlier interest-rate reductions have yet to flow through to demand, prices, and wages.
Labour market conditions remain relatively tight. The unemployment rate is slightly lower than anticipated, measures of labour underutilisation are low, and labour market conditions have stabilised alongside stronger economic activity. While growth in the Wage Price Index has eased from its peak, broader measures of wages growth remain firm and growth in unit labour costs continues to be elevated, reinforcing inflation risks.
What Impacted the RBA’s Decision
The decision to raise the cash rate reflects an assessment that inflation risks have increased. A wide range of data confirmed that inflationary pressures picked up materially in the second half of 2025, with private demand growing more quickly than expected and capacity constraints tighter than previously assessed. Stronger housing market activity, readily available credit, and persistently tight labour market conditions all contributed to the RBA Board’s view that inflation is likely to remain above target without further policy restraint. Internationally, while uncertainty and geopolitical risks persist, recent economic growth among Australia’s major trading partners has surprised on the upside and has not materially dampened domestic conditions.
Moving Forward
Looking ahead, the RBA reiterated that its policy stance remains data-dependent. The Board will closely monitor developments in domestic demand, labour market conditions, wage growth and inflation, as well as global economic and financial market trends. With demand momentum strong and capacity pressures elevated, the RBA signalled that it remains focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome.
Today’s decision was unanimous, underscoring the Board’s shared view that a modest tightening in policy was warranted to contain inflation risks. The RBA’s next monetary policy decision is scheduled for 17th March. The REIV will continue to monitor developments closely, as interest rate settings remain a key influence on borrowing capacity, investment activity and mortgage servicing across the real estate sector.