'Inflation is too strong': RBA hikes rates for first time in more than two years — as it happened

Thanks for tuning in to our running coverage of today's RBA decision. Here's a recap of what we learned today:

• The Reserve Bank of Australia (RBA) has lifted the cash rate to 3.85 per cent, its first hike in more than two years, after its Monetary Policy Board unanimously concluded that inflation was too strong
• The board said inflation had risen sharply since mid-2025 and it was now expected to stay above the RBA's 2–3 per cent target band for longer than previously forecast
• Stronger-than-expected household spending, investment and housing activity were cited as key drivers of inflation
• RBA governor Michele Bullock acknowledged that rising interest rates meant pain for borrowers but warned that leaving inflation unchecked would ultimately be worse for households and the broader economy
• Bullock defended the August rate cut, arguing it was appropriate based on the information the RBA had at the time
• She said the board was still walking a "narrow path" — aiming to curb inflation without sacrificing hard-won labour market gains
• She described Australia as being in a "really good position" economically, but increasingly constrained by limited supply capacity
• The RBA's economic analysis stressed weak productivity growth, which Bullock said was outside the remit of the central bank to fix

— Gabrielle Katanasho

When asked whether the rising Australian dollar factored into today's rate decision, Michele Bullock said: "The exchange rate is certainly a part of the transmission mechanism."

The transmission mechanism is economic jargon for the process through which central bank decisions, generally cash-rate movements, flow through to the economy.

Bullock said a sustained rise in the value of the Australian currency could "help to buffer the economy" by lowering import prices and slowing demand, but stressed that such changes were "already factored into our forecast, so it's not additional to that".

Bullock added that the recent lift in the dollar largely reflected markets adjusting to a higher-than-expected cash rate path, saying the exchange rate move was "all bound up together" with interest rate expectations.

— Gabrielle Katanasho

Michelle Bullock has highlighted that the Reserve Bank is unable to boost Australia's productivity, after the bank's Statement on Monetary Policy (SMP) highlighted "weakness in productivity growth".

"A lot of people have a lot of hope in terms of AI in terms of productivity, but we can't do anything about productivity," she said at this afternoon's press conference. 

"I'm not the productivity czar; Danielle Wood has plenty of good ideas about what we can do about productivity," she said, referencing the chair of the Productivity Commission.

The newly released SMP noted that "productivity growth has been weak over recent years, but we expect some of the drivers of this weakness to wane".

Economists generally expect that rising labour costs without rising productivity, or falling profit margins, have an inflationary effect, especially within labour-intensive sectors such as retail, health care or construction.

— Zacharias Szumer

Michele Bullock has defended the RBA's August 2025 rate cut, after being asked by a reporter if she now viewed it as a mistake, given today's decision to tighten the monetary screws again.

The central bank governor said people should judge decisions based on the information available at the time, not with the benefit of hindsight.

"I would take you back to the first half of last year and what we were facing into," Bullock said, noting that "the market was expecting three rate cuts, demand was soggy, inflation was coming back, it was in the [RBA's target] band, everything was in line".

"I think we were doing the right thing," she said.

"Circumstances change, we change."

— Gabrielle Katanasho

RBA governor Michele Bullock was asked whether the bank would stick with its slower, more cautious approach to rate hikes aimed at preserving labour market gains.

She said the Monetary Policy Board "still has basically the same strategy", stressing it is trying to "bring inflation down without giving up so many of the gains we have had".

Bullock said Australia was "actually in a really good position", pointing to a "really strong" labour market and recovering domestic demand.

But she warned the economy was "supply-constrained … even a little bit more constrained than we thought".

"The strategy still is to try to bring the economy back into balance and the labour market back into balance without overshooting," she said, noting other countries had accepted higher unemployment as the cost of fighting inflation.

— Gabrielle Katanasho

RBA governor Michele Bullock said she understood borrowers would likely be "disappointed" by the latest rate hike, acknowledging it was "not a great outcome" for those facing higher repayments.

But she warned the alternative would be worse, saying "what's also not great for them, or for anyone else, is if inflation remains elevated", citing the prospect of rising grocery prices and medical costs.

"Ultimately, it is best if we get inflation under control, and our instrument is the interest rate," Bullock said, adding that while she empathised with borrowers, "the alternative is potentially even harder".

She said expectations last year had been shaped by fears of a global economic downturn, which had not eventuated, with easing financial conditions instead fuelling a faster-than-expected rebound in private demand.

— Gabrielle Katanasho

Reserve Bank governor Michele Bullock is speaking to reporters now.

She says fresh data convinced the Monetary Policy Board that inflation pressures were proving too strong, prompting the decision to lift the cash rate to 3.85 per cent.

"The recent run of data gives the board a clear-enough view that the underlying momentum of inflation is too strong," Bullock said, adding that the central bank had "updated our assessment and outlook for the economy and concluded that the rate was no longer at the right level to get inflation back to target in a reasonable time frame".

She said the decision was driven by a reassessment of how long inflation would now take to return to target.

"Based on the data we have seen and the conditions here and around the world, the board now thinks it will take longer for inflation to return to target, and this is not an acceptable outcome," she said.

More to come.

— Gabrielle Katanasho

Based on median dwelling values in each capital city, today's cash rate rise of 0.25 percentage points could mean borrowers in Sydney see their monthly repayments jump by over $156, while those in Brisbane might experience an increase of around $129, according to figures from the REA Group.

See estimates for Australia's other capital cities in the table below:

— Josie Harvey

David Koch, economic director of product comparison service Compare the Market, has expressed some support for the Reserve Bank's decision to lift the cash rate, despite describing it as "another whack for the millions of Aussies who have a mortgage".

"Unfortunately, it seems like the medicine we need to take to stop inflation accelerating," he added.

"If banks pass it on, as I expect they will, this will have a direct and immediate impact on household budgets, particularly for borrowers with larger mortgages or those who have only been paying the minimum repayments," he warned.

Gavan Ord, from accountancy body CPA Australia, said the hike comes at a tough time: "Borrowers who had been encouraged by recent rate cuts will be deeply disappointed, particularly households coming off long-term fixed rates who are now facing much higher repayments."

He added that "small businesses remain under pressure from high borrowing costs, rising inflation and low consumer confidence. For many, there are no easy options left".

— Gabrielle Katanasho

The Reserve Bank's Statement on Monetary Policy (SMP) — which includes the bank's assessment of current economic conditions as well as its future outlook — has highlighted that inflation has increased strongly since the middle of last year.

"Prices have gone up for a broad range of goods and services. Australian households and businesses have been spending more, the jobs market has remained strong, and the global economy has held up better than we expected," the SMP's summary says.

The central bank forecasts that the economy is likely to grow faster in 2026 than previously anticipated, while the jobs market is expected to remain healthy.

It expects inflation to remain above its 2 to 3 per cent target range until next year.

— Josie Harvey

The Australian dollar has officially reached 70 US cents for the first time in 16 months, boosted by a mix of domestic strength and global market shifts.

Improved economic indicators, including strong employment and a robust trade surplus, have supported investor confidence.

Rising commodity prices, particularly for iron ore and coal, have also underpinned the currency's lift.

Meanwhile, expectations around US interest rates are keeping the US dollar under pressure, reinforcing the Australian dollar's gains.

— Gabrielle Katanasho, Ricardo Gonçalves

The Reserve Bank of Australia expects inflation to remain above its target band of 2–3 per cent for a while longer, its Monetary Policy Board said in a statement explaining its decision to lift the official cash rate by 25 basis points to 3.85 per cent.

"Some of the recent price pressures are likely to continue and we expect inflation to be above the target for some time," it said, adding that stronger-than-expected demand and ongoing capacity pressures had prompted the board's unanimous decision.

"Growth in private demand has strengthened substantially more than expected, driven by both household spending and investment," it said, noting that housing activity and prices are also picking up.

The board highlighted that financial conditions eased over 2025 and the effects of earlier interest rate reductions were "yet to flow through fully to aggregate demand, prices and wages".

Labour market conditions remain "a little tight", with unemployment slightly below expectations and wage growth continuing to be strong, the statement said.

— Gabrielle Katanasho

It's midway through Question Time, and Treasurer Jim Chalmers was on his feet just as the Reserve Bank decision was announced.

Opposition MPs have been furiously refreshing their screens in the lead-up to the decision.

Prime Minister Anthony Albanese and the treasurer have been arguing the budget is not the main factor driving inflation.

Members of the Liberal Party have been calling out across the chamber that the government should "say sorry" for the reality that awaits mortgage holders.

— Anna Henderson, SBS chief political correspondent

The Reserve Bank of Australia (RBA) has increased the official cash rate from 3.6 per cent to 3.85 per cent.

It's the first time the central bank has hiked the rate in more than two years, after it increased from 4.10 per cent to 4.35 per cent in November 2023.

Australia's 'big four' banks and many economists — but not all — had anticipated an increase, after Australian Bureau of Statistics data showed a jump in inflation.

For an average owner-occupier with a $600,000 loan, the RBA board's decision will translate to a $90 increase to their minimum monthly repayments.

It's the Reserve Bank of Australia's first rate rise since November 2023. Source: SBS

— Alex Gallagher

With the uncertainty of today's decision looming over the housing market, investors are buying up safe-haven commodities.

At 1pm AEDT, gold is up 3.7 per cent to $6,953 an ounce while silver has surged 6.5 per cent to $120 an ounce.

Peter Swan, a professor of finance at the University of NSW Business School, told SBS News that the cost of investing in gold and silver, like any commodity, is based on supply and demand.

Read more:

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— Cameron Carr

Growth in property prices may slow if the RBA returns to rate hikes in 2026, but a sharp drop remains unlikely, according to financial comparison agency Canstar.

"Last time around, with those 13 cash rate hikes — four of which were doubles — the property market didn’t miss many beats," insights director Sally Tindall told SBS News.

"There were moments at the beginning where prices dipped, but by and large, prices continued to defy gravity because the equation between supply and demand is so far out of whack."

She added that even if a few markets saw small dips, "we would expect property prices will continue to grow because of the fact that the supply and demand equation is out of kilter".

Angus Moore, REA Group senior economist, similarly said structural factors will continue to support growth.

"Home prices are still expected to grow across 2026 on the back of last year's cuts and strong economic and housing fundamentals," he said in a statement.

"The unemployment rate remains very low, and population growth is solid amid relatively constrained new supply. However, higher rates this year will slow price growth down compared to the pace recorded last year."

— Gabrielle Katanasho

A potential rate hike by the Reserve Bank on Tuesday could lift the Australian dollar, with implications for inflation and businesses, according to AMP chief economist Shane Oliver.

"If you hike, then rate hike expectations will be reinforced. The money market is assuming over two hikes here," Oliver told SBS News.

"In the US, the money market is assuming two cuts this year. So, a hike will probably reinforce the upwards pressure on the Aussie dollar."

He explained the broader impact: "A rising Aussie dollar is great for Australians going on holiday, but tough news for Australian companies that have to compete internationally. That is a form of monetary tightening — over time it will lower prices for imports and take pressure off inflation."

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Oliver added: "It's not just rates going up, it's also the Aussie dollar going up. Ramp up rate hike expectations, and you'll end up with a stronger Australian dollar and further de facto monetary tightening."

— Gabrielle Katanasho

Australia's share market bounced back on Monday, recovering from its worst day in ten weeks as investors bought the dip ahead of the Reserve Bank's first interest rate decision for 2026.

Mining stocks led the rally, boosted by strong US manufacturing data and a trade de-escalation between the US and India.

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"The Australian interest rate market starts the day with 19 basis points (a 76 per cent probability) of a 25 basis point rate hike built in for this afternoon's meeting," IG market analyst Tony Sycamore told AAP.

"Mindful that the RBA never hikes just once, the market is pricing in a second 25 basis point RBA rate hike by September 2026," he said.

— Gabrielle Katanasho, AAP

UNSW economists have warned that Australians should prepare for interest rates to remain elevated as inflation proves more persistent than expected.

Evgenia Dechter said: "Inflation has come down, but it is not yet back within the target range and has proved more persistent than expected."

"That is why the RBA has been cautious about easing policy."

In the near term, mortgage repayments are expected to stay tight.

Dechter said: "For mortgage holders, the 'higher for longer' scenario means repayments stay high for a while, and relief would likely be gradual rather than immediate."

Renters may also continue to face pressure as higher financing costs constrain housing supply, she added.

Looking ahead, rate cuts are likely to be gradual and data-dependent.

Gonzalo Castex explained: "Australians should understand that the RBA's outlook is inherently uncertain ... Decisions will reflect a careful balance between controlling inflation and supporting employment, rather than a fixed path for interest rates."

— Gabrielle Katanasho

While many economists anticipate a rate rise on Tuesday, there's no consensus on whether the RBA would hike rates further this year.

"We don't see a case for further tightening past February at this stage, unless the RBA staff's forecasts change in a substantial way," experts with the JP Morgan investment bank said.

Commonwealth Bank's head of Australian economics, Belinda Allen, agreed.

"We think the RBA will be one and done for interest rate hikes in 2026," she told AAP.

"Inflation is too high, the economy is growing a little bit above its potential, but it won't take much to bring the economy and inflation back into balance.

"The risk, of course, is that more will need to be done. A lot of that will be driven by how the labour market performs and how upcoming inflation prints go."

At the same time as its cash rate decision on Tuesday, the RBA will also release its Statement on Monetary Policy (SMP), which will provide clues on how the bank expects the next year to play out.

The central bank releases four SMPs each year, which contain the RBA's assessment of current economic and financial conditions as well as the data it has used to inform its rate decision.

Canstar's 'big four bank' forecast data shows broad agreement on a near-term hike, but less clarity on how far rates may rise through 2026. Source: SBS

Sally Tindall, data insights director at financial comparison site Canstar, said the financial comparison site's 'big four' bank forecast data indicated broad agreement on a near-term hike, but less clarity on how far rates might rise through 2026.

"Prepare your budget as if we're going to see more than one rate hike," Tindall said.

"It's better to be overprepared than fall short."

— Josie Harvey, Gabrielle Katanasho