RBA Raises Cash Rate to 3.85%
The Reserve Bank of Australia raised the cash rate by 25 bps to 3.85% at its first policy meeting of 2026. This decision was unanimous and immediately signaled a return to tighter policy after price pressures returned to strength.
The RBA assessed that inflation had indeed fallen significantly from its peak in 2022, but rose sharply again in the second half of 2025. The central bank attributed some of this increase to capacity pressures (demand exceeding supply), so inflation is expected to remain above target for some time.
According to the RBA, domestic demand momentum strengthened more than expected—supported by household spending and investment—and the housing market rebounded. Financial conditions were also looser throughout 2025, and the impact of previous rate cuts has not yet been fully felt in demand, prices, and wages.
On the labor side, the RBA stated that the labor market remains “somewhat tight”: unemployment is lower than expected and underutilization measures remain low. Wage growth has indeed softened from its peak, but broader measures of wages remain strong, and unit labor costs are considered high.
Going forward, the RBA emphasized that it will rely heavily on data for its next steps—monitoring the global economy, domestic demand trends, and the outlook for inflation and the labor market. Several local media outlets noted that this is also the first rate hike in more than two years, so the market will be increasingly sensitive to subsequent inflation and labor data releases. (asd)
Source: Newsmaker.id
