Monetary Policy Decision

Media Conference – 5 MAY 2026

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Decision
The cash rate target increased by 25 basis points to 4.35 per cent. Today’s policy decision was made by majority: eight members voted for an increase, while one voted to keep it unchanged at 4.10 per cent.

Inflation
Inflation accelerated materially since the second half of 2025, and recent data confirm that part of this increase reflects greater capacity pressures in meeting private demand. The conflict in the Middle East has also driven fuel and related commodity prices sharply higher, already adding to inflation. Firms facing higher costs are beginning to raise prices, and short‑term inflation expectations have increased. The Bank has updated its forecasts to incorporate recent data and developments in the Middle East. The baseline forecast, which assumes the conflict is resolved soon and fuel prices decline, now shows underlying inflation peaking higher than expected in February. It then eases as demand growth slows and capacity pressures moderate in response to higher interest rates.

Economic and Labour Market Conditions
Economic conditions have tightened this year, with higher money-market rates, government bond yields and an appreciated exchange rate, though credit remains readily available. Uncertainty around the outlook for domestic activity and inflation has increased, largely due to the ongoing conflict in the Middle East. A longer or more severe conflict could push global energy prices higher, lifting inflation in the near term and potentially further out if cost pressures and expectations adjust, while also weighing on growth in Australia and its major trading partners.

Monetary Policy Stance
Having raised the cash rate three times, monetary policy is well placed to deliver price stability even as inflation is expected to remain above target for some time and risks remain tilted to the upside.