The Reserve Bank of Australia lifted the cash rate by 25 basis points to 4.10%, marking its second rate increase this year and reflecting growing concern that inflation risks have re‑intensified. While inflation has fallen significantly from its 2022 peak, the RBA noted a material pick-up in the second half of 2025 driven by stronger-than-expected demand, a tight labour market and rising capacity pressures. Escalating conflict in the Middle East has added to inflation risks via sharply higher energy prices and rising inflation expectations.
Governor Michele Bullock’s messaging remains firm but measured. She emphasised that inflation is still the central concern and that the balance of risks has tilted to the upside, including the risk inflation remains above target for longer than previously anticipated. At the same time, Bullock acknowledged material uncertainty around how restrictive policy currently is, noting that credit remains readily available and earlier rate cuts have not yet fully flowed through to demand, prices and wages.
Importantly, Bullock reinforced the RBA’s data‑dependent stance. While policy is “well placed” to respond, future decisions will be guided by incoming data on inflation, domestic demand and labour market conditions, alongside global developments. The split decision (5 members voted in favour of an increase whilst four members voted to leave rates unchanged) highlights increased internal debate, but the overall message is clear: the RBA is prepared to do what it considers necessary to return inflation to target while maintaining full employment.
To find out how we can help see our Capital Management.