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Opening 2026 on a hawkish note, the Reserve Bank of Australia issued its most recent Statement on Monetary Policy along with the first policy decision of the year. The quarterly review summarizes the RBA's views on worldwide and local conditions, its revised inflation forecast, and economic projections, all of which influenced the Board's decision to tighten monetary policy. The paper emphasizes how these changing forces are affecting the central bank's approach to maintaining the economy on a sustainable course.
With core inflation now reaching 4% in a still-strong economy and continuing pricing pressures, one major worry is that inflation has reaccelerated beyond the RBA's 2–3% target band. Responding, the Board increased the cash rate by 25 basis points to 3.85%, so canceling the rate reduction given in August. Should inflation not exhibit strong evidence of approaching the target, the RBA also indicated that additional tightening stays open.
Though warning of upside inflation risk brought on by both high domestic demand and worldwide cost pressures, the SMP emphasizes strong consumer spending and resilient employment. Although growth projections remain modest, policy is specifically targeted to strike a balance between price stability and the objective of sustaining full employment. Financial markets have reacted by pricing in additional rate hikes, a shift that is already weighing on mortgage borrowers and supporting a firmer Australian dollar.
