RBA Strikes Again: Cash Rate Climbs to 4.35% as Inflation Stubbornly Rebounds

Declaring a 25-basis-point increase to the cash rate target to 4.35% as of May 5, 2026, the Reserve Bank of Australia (RBA) has stepped up its fight against ongoing price pressures. This action comes after a worrisome uptick in inflation in the second half of 2025, when the Consumer Price Index (CPI) reached 4.6% in March 2026. Governor Bullock and the Board pointed out a mix of domestic capacity limits and a tightening labour market aggravated by the continuous fighting in the Middle East, which has increased fuel prices and unanchored short-term inflation expectations.

The economic data shown at the conference depicted a "two-speed" economy. Although business investment and internal demand have stayed remarkably robust, family consumption is starting to slow down under the load of earlier increases. Even with this slowdown in the retail industry, the Board was worried that inflation might stay over the 2–3% target range for longer than they had thought. The decision was obviously divisive, passing with a slim 5-4 vote that reflected a major split across Board members over whether existing economic circumstances were already adequately restrictive.

Looking ahead, the RBA retains a strictly data-dependent position, stressing that the road back to target inflation is "narrow". The Board suggested that if price stability remains threatened, more tightening cannot be discounted, given that global uncertainties add notable upside risks to the inflation forecast. For the time being, the emphasis is still on striking a compromise between the goal of full employment and the pressing need to stop a high-inflation mentality from taking hold in the Australian economy.