The Reserve Bank of Australia (RBA) has announced a 0.25 percentage point increase to the official cash rate, lifting it to 4.1 per cent. While the move wasn't universally anticipated by market commentators, many economists had flagged the possibility in the wake of growing geopolitical tensions following the outbreak of conflict between the US, Israel, and Iran.
Leading up to the decision, markets were fairly divided — the ASX's RBA Rate Tracker had placed a 58 per cent chance on a rate rise and a 42 per cent chance of no change as of 16 March 2026. Ultimately, the RBA board voted five to four in favour of the increase, with four members preferring to hold the rate steady at 3.85 per cent.
In its statement, the RBA explained that a broad range of data has confirmed a build-up in inflationary pressures across the second half of 2025. The board acknowledged that some of this uptick reflects temporary factors, but noted that the labour market has tightened and capacity pressures are slightly higher than previously assessed.
"Developments in the Middle East remain highly uncertain," the RBA noted, adding that across a wide range of scenarios, the conflict could add to both global and domestic inflation. With inflation expected to remain above target for some time and risks tilting to the upside, the board determined a rate increase was the appropriate response.
A Closely Watched Decision
In the lead-up to the meeting, debate centred on whether the RBA would deliver a back-to-back hike — returning the cash rate to levels seen just over a year ago — or adopt a hawkish hold ahead of a potential May increase, as surging oil prices and renewed inflation risks complicated the picture.
Prominent voices weighed in on both sides. Betashares' David Bassanese and T. Rowe Price's Scott Solomon both anticipated an immediate March rise, while Ebury's Anthony Malouf suggested the board might prefer to wait for the late-April first-quarter CPI print before acting. All four major banks, however, had already shifted to a base case of back-to-back hikes in March and May.
What the Experts Are Saying
MLC Senior Economist Bob Cunneen had sounded the alarm ahead of the decision, warning that inflation was already running too hot. He pointed to the sharp rise in petrol prices following the outbreak of conflict in the Middle East as a key catalyst, noting that national prices had climbed from around $1.71 per litre in February to above $2.20. In his view, this alone could push Australia's annual inflation — which sat at 3.8 per cent to January — closer to 5 per cent in the months ahead.
CreditorWatch Chief Economist Ivan Colhoun echoed this sentiment, describing the rate rise as justified given the slow return of inflation to target, as well as recent data on inflation, unemployment, and growth. He acknowledged the decision brings unwelcome news for households and businesses, but stressed that allowing inflation to run above target for an extended period would ultimately be more damaging.
"While this is news that is unwelcome for both households and businesses, neither is the situation where inflation is allowed to run above-target for a further extended period," Colhoun said.
Rick Maggi | Westmount Financial | Financial Advisor | Perth
