Media Release Statement by the Monetary Policy Board: Monetary Policy Decision

Number 2026-08 Date

17 March 2026

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

While inflation has fallen substantially since its peak in 2022, it picked up materially in the
second half of 2025. Information since the February meeting suggests that some of the increase in
inflation reflects greater capacity pressures. In addition, the conflict in the Middle East has
resulted in sharply higher fuel prices, which, if sustained, will add to inflation. Short-term
measures of inflation expectations have already risen. As a result, the Board judged that there is a
material risk that inflation will remain above target for longer than previously anticipated.

Higher capacity pressures reflect, in part, the greater momentum in demand in the latter part of
2025. Growth in private demand strengthened substantially more than was expected in mid-2025,
although the composition of that growth surprised in the December quarter. Business investment was
above expectations and consumption was below expectations. Meanwhile, growth in unit labour costs
declined. More recently, the unemployment rate has been a little lower than expected and measures of
labour underutilisation remain at low rates. Activity and prices in the housing market grew strongly
over the past year, although housing price growth moderated somewhat at the start of 2026.

Financial conditions have tightened a little this year, but the extent to which monetary policy is
restrictive is uncertain. Credit is readily available to both households and businesses and the
effects of interest rate reductions in 2025 are yet to flow through fully to aggregate demand, prices
and wages. The exchange rate, money market interest rates and government bond yields have risen over
the past month. In large part, higher interest rates reflect expectations for the path of monetary
policy, which have risen in Australia and most other advanced economies in response to the expected
inflationary implications of the conflict in the Middle East.

There are material uncertainties about the outlook for domestic economic activity and inflation and
the extent to which monetary policy is restrictive. Globally, the conflict in the Middle East poses
substantial risks in both directions. A longer or more severe conflict could put further upward
pressure on global energy prices; this will push up near-term inflation and could also increase
inflation further out if it impairs supply capacity or price rises get built into longer term
inflation expectations. Higher prices and prolonged uncertainty may cause growth to be lower in
Australia’s major trading partners and also in Australia.

Decision

A wide range of data over recent months have confirmed that inflationary pressures picked up
materially in the second half of 2025. While part of the pick-up in inflation is assessed to reflect
temporary factors, the Board judged that the labour market has tightened a little recently and
capacity pressures are slightly greater than previously assessed. Developments in the Middle East
remain highly uncertain, but under a wide range of possible scenarios could add to global and
domestic inflation.

In light of these considerations, the Board judged that inflation is likely to remain above target
for some time and that the risks have tilted further to the upside, including to inflation
expectations. It was therefore 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.
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: five members voted to increase the cash rate
target by 25 basis points to 4.10 per cent; four members voted to leave the cash rate
target unchanged at 3.85 per cent.

Enquiries

Communications Department
Reserve Bank of Australia
SYDNEY

Phone: +61 2 9551 8111
Email: rbainfo@rba.gov.au