Minutes from the Reserve Bank of Australia’s February meeting show policymakers concluded that risks to inflation and employment had “shifted materially”, prompting a 25 basis point rate increase while reinforcing a tightening bias without pre-committing to further action.
The Board judged that, without a policy response, inflation would likely remain above the 2–3% target band for an extended period.
Data since the prior meeting had generally surprised to the upside, reinforcing concerns that price pressures were more persistent and broad-based than previously expected.
The cash rate was lifted by 25 basis points to 3.85%. While members discussed the option of holding rates at 3.60%, they agreed that a hike represented the stronger policy response given the evolving risk profile.
The Board's decision was unanimous.
The meeting minutes noted: "The forecast for inflation had been revised materially higher compared with that in the November Statement on Monetary Policy (which itself was higher than in the August Statement).
"The central projection for trimmed mean inflation now peaked at 3.7 per cent in mid-2026, with headline inflation at 4.2 per cent around that time (reflecting the ending of electricity rebates). Both underlying and headline inflation were projected to fall to a little below 3 per cent by mid-2027.
"Beyond that, the forecast was for inflation to fall to a little above the midpoint of the target range by mid-2028, on the assumption that the cash rate follows the market path.
"Members noted that the staff’s judgement about the extent of persistence in recent demand and inflation outcomes is key to this forecast, with material risks on both sides of the central projections."
Policymakers also noted that inflation in the second half of 2025 had been widespread across the consumption basket, consistent with mounting capacity pressures:
"Members discussed the likely persistence of the rise in inflation. They noted that inflation in the second half of 2025 had been broadly based: the share of items in the basket with prices rising by an annualised rate of more than 2.5 per cent had increased sharply and was high by historical standards. The breadth of inflation was consistent with the staff’s assessment that economy-wide capacity pressures – which looked to have increased in the second half of 2025 – had contributed to some of the recent increase.
"The staff judged that the larger part of the increase had reflected less-persistent factors, including price volatility in categories such as electricity, travel and groceries, and some sector-specific demand and price pressures that had affected prices of new dwellings and durable goods.
"Inflation in administered prices (excluding electricity) was only a little above its historical average and had picked up only modestly."
Members concluded that aggregate demand was exceeding supply and was likely to do so for some time. Labour market conditions were viewed as firm, with downside risks diminishing and labour costs remaining elevated.
Financial conditions were also seen as having eased materially. Banks were lending freely, credit growth had strengthened, and housing market activity had accelerated.
Members expressed concern that monetary policy might no longer be as restrictive as previously assumed, even after accounting for the appreciation in the Australian dollar.
Despite the tightening move, the Board stressed there was no preset path for interest rates. Future decisions would remain explicitly data dependent, with risks judged to exist on both sides of the outlook.
Front-end bond yields and the Australian dollar are therefore likely to remain sensitive to incoming data, particularly the next consumer price index (CPI) release, as markets continue to price some probability of another hike in the coming months.
In commentary following the minutes, analysts at ANZ said: "Our own view remains that the RBA is likely to end up (marginally) pleasantly surprised on the inflation front.
"We also think that a likely slowing in real household income growth, the current low level of consumer confidence, and the fall in household spending in December, all point to a weaker consumer heading into the May meeting.
"We therefore see the cash rate remaining at 3.85% over 2026, although we acknowledge the data need to fall on the softer side to give the RBA Board comfort."
The global backdrop was described as more resilient than anticipated, partly supported by strong artificial intelligence-related investment.
Nonetheless, the Board acknowledged considerable uncertainty and limited confidence in any specific future rate path.
