For a third consecutive time, the Australian central bank has added another 25 bps cash rate target hike to 4.35%, reversing all of of its cuts since February 2025

For a third consecutive time, the Reserve Bank of Australia has raised its cash rate target.

Today's review added +25 bps to take the rate to 4.35%. And that takes it back to the level that applied between December 2023 and February 2025.

The key driver of the changed direction is rising inflation.

In March, the consumer price index was up 4.6% from a year ago, its fastest rise since September 2023, and prior to the pandemic distortions, since September 2008. The prior +50 bps hikes have been singularly ineffective ion quelling inflation so far.

But they have done more of it today.

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Financial markets expect them to keep on hiking from here. They have priced in another +40 bps so that the cash rate target tops out at 4.75% by the end of the year.

But where will inflation be by then? And what will be the inflation pressure.

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The RBA's rationale for today's rate hike is that current high inflation will take some time to revert back even if the Middle East conflict is resolved soon. And if it isn't, then inflationary pressure will rise even further.

Todays decision was on a 8-1 vote, with one member preferring to leave the 4.10% rate unchanged.

Banks have been raising their savings and term deposit rates in anticipation, as well as raising fixed home loan rates. Today's hike gives the green light to a comprehensive round of matching variable rate hikes.

You can keep up to date with all the rate changes by banks here for home loans, here for savings accounts, and here and here for term deposits.

Higher rates may well weigh further on housing markets that have cooled recently, and that is probably the RBA's intent even though their talk is all about inflation. Rising house prices feed into inflation expectations in a significant way. And these expectations weigh heavily on policymakers when they look at trying to keep inflation close to the mid-point of their 1-3% band. The March RBA rate hike was effective in cooling this house-price impulse.

Just after the decision, the ASX200 rose, now recording a gain of +0.2%. The AUD eased very slightly to 70.6 USc. The AGB 10yr yield slipped slightly to 4.925%.

Here is the Statement by Governor Bullock on today's move.

At its meeting today, the Board decided to increase the cash rate target by 25 basis points to 4.35 per cent.

Inflation picked up materially in the second half of 2025, and information since the beginning of this year confirms that some of this increase reflected greater capacity pressures. In addition, the conflict in the Middle East has resulted in sharply higher fuel and related commodity prices, which are already adding to inflation. There are early signs that many firms experiencing cost pressures are looking to increase prices of their goods and services. Short-term measures of inflation expectations have also risen.

The Bank has updated its forecasts to incorporate recent data and developments in the Middle East. The baseline forecast, which assumes that the conflict is resolved soon and fuel prices decline, sees underlying inflation peaking higher than was expected in February. It then declines as demand growth slows and capacity pressures ease in response to higher interest rates.

Financial conditions have tightened this year. Money market interest rates and government bond yields have risen, and the exchange rate has appreciated. But credit is readily available to both households and businesses.

There are materially heightened uncertainties about the outlook for domestic economic activity and inflation. With the conflict in the Middle East continuing, there are plausible scenarios where inflation is higher and activity lower than envisaged under the baseline forecast. A longer or more severe conflict could put further upward pressure on global energy prices; this would push up near-term inflation and could also increase inflation further out as these costs are passed through and if price rises get built into longer term inflation expectations. But higher prices and prolonged uncertainty may cause growth to be lower in Australia’s major trading partners and also in Australia.

Decision

As expected, developments in the Middle East are having an impact on inflation. Higher fuel prices are adding to inflation and there are indications that this is likely to have second-round effects on prices for goods and services more broadly. This inflation impulse is in addition to the high inflation recorded around the start of 2026, reflecting capacity pressures in the economy.

In light of these considerations, the Board assessed that inflation is likely to remain above target for some time and that the risks remain tilted to the upside, including to inflation expectations. It was therefore judged appropriate to increase the cash rate target.

The Board will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions. In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand and the outlook for inflation and the labour market. Having raised the cash rate three times, monetary policy is well placed to respond to developments and the Board is focused on its mandate to deliver price stability and full employment. It will do what it considers necessary to achieve that outcome.

Today’s policy decision was made by majority: eight members voted to increase the cash rate target by 25 basis points to 4.35 per cent; one member voted to leave the cash rate target unchanged at 4.10 per cent.