At a time when other central banks are cutting interest rates, the Reserve Bank of Australia enacted its first rate hike in three years.
The central bank increased its cash rate target by 25 basis points to 3.85%, noting that Australia’s inflation “picked up materially in the second half of 2025” while adding that “inflation is likely to remain above target for some time.” While noting the national economy had positive momentum in many areas, including the housing market, the central bank warned that “if growth in demand is stronger than expected, and growth in the economy’s supply capacity remains limited, it is likely to add further to capacity pressures. Uncertainty in the global economy remains significant but so far there has been little or no depressing effect on the Australian economy; indeed, recent growth and trade in Australia’s major trading partners has surprised on the upside.”
Jim Chalmers, Australia’s treasurer, acknowledged the rate hike “will be difficult news for millions of Australians,” impacting mortgage holders and businesses that were relying on lower rates.
