RBA Governor Michele Bullock told the House of Representatives economics committee today that the decision to raise the cash rate by 25bps to 3.85% was driven by a clear resurgence in inflation pressures during the second half of 2025.
Bullock said the Board concluded that demand in the economy had proven stronger than expected, running ahead of the supply side’s capacity to respond. As a result, inflation outcomes indicated a larger degree of “excess demand” than previously assumed.
She emphasized that this imbalance means demand growth must be dampened unless productivity and supply expand at a faster pace. With the economy now judged to be “more capacity constrained”, leaving policy unchanged would risk inflation remaining elevated for longer. On that basis, the RBA determined that tighter monetary policy was required.
