RBA Raises Cash Rate to 3.85% on Inflation Rise

Australia's central bank raised its benchmark interest rate on Tuesday, lifting the cash rate target by a quarter percentage point to 3.85 percent in response to a surge in inflation that has exceeded its target range.

The Reserve Bank of Australia made the unanimous decision at the conclusion of its February policy meeting, marking the first increase since November 2023. The move reverses one of three rate reductions implemented last year in February, May, and August, which had briefly eased borrowing costs amid falling inflation pressures. Officials stated that while inflation has declined substantially from its 2022 peak of 7.8 percent, it rose materially in the second half of 2025, reaching 3.8 percent for the 12 months through December, up from 3.4 percent in November. The bank noted that private demand is expanding faster than anticipated, capacity constraints are more pronounced than previously assessed, and labor market conditions remain somewhat tight, with unemployment unexpectedly falling to 4.1 percent in December.

The RBA emphasized that part of the recent inflation uptick may stem from temporary factors, but the overall outlook suggests price growth will stay above...