The Reserve Bank Monetary Policy Board has moved to raise the cash rate, as it responds to renewed inflationary pressures and a mounting global oil shock.
On Tuesday afternoon (17 March), the Reserve Bank of Australia (RBA) Monetary Policy Board announced that it had lifted the cash rate – a decision which was widely anticipated as it confronts stubborn inflation and mounting price pressures from the Middle-East driven oil shock.
The RBA has increased the official cash rate by 0.25 per cent, continuing the tightening cycle which begun in February when the Board last lifted interest rates.
This takes the cash rate from its current level of 3.85 per cent to 4.1 per cent.
The decision was narrowly split, with five members voting to increase the cash rate while four members voted to leave it unchanged.
In its post‑meeting statement, the board said the decision to lift the cash rate again was driven by a pick‑up in inflation and a view that price pressures were more entrenched than previously thought.
“Information since the February meeting suggests that some of the increase in inflation reflects greater capacity pressures. In addition, the conflict in the Middle East has resulted in sharply higher fuel prices, which, if sustained, will add to inflation,” the statement read.
“As a result, the Board judged that there is a material risk that inflation will remain above target for longer than previously anticipated.”
The Board also highlighted that, even as inflation risks had intensified, wage and cost dynamics in parts of the economy had been moderating with the labour market remaining tight by historical standards.
Policymakers stressed that the decision reflected global repricing of monetary policy paths, including in Australia.
“In large part, higher interest rates reflect expectations for the path of monetary policy, which have risen in Australia and most other advanced economies in response to the expected inflationary implications of the conflict in the Middle East.”
The statement underlined that the outlook was highly unpredictable, with the Board weighing both the upside risks to inflation from a more prolonged conflict and potential downside impacts to global growth.
"There are material uncertainties about the outlook for domestic economic activity and inflation and the extent to which monetary policy is restrictive,” the Board said.
“A longer or more severe conflict could put further upward pressure on global energy prices; this will push up near-term inflation.”
After reviewing a broad range of data, the RBA concluded that inflationary pressures had strengthened enough that another rise in the cash rate was necessary.
“In light of these considerations, the Board judged that inflation is likely to remain above target for some time and that the risks have tilted further to the upside, including to inflation expectations. It was therefore appropriate to increase the cash rate target,” the statement read.
Looking ahead, the RBA emphasised that it was not on a pre‑set path and would calibrate future moves based on how the economy and inflation evolved.
Executive director at Connective, Mark Haron, said the rate rise was largely in line with expectations, yet reinforced that the RBA was firmly focused on taming inflation.
“Today’s increase isn’t surprising given inflation remains above target, and demand across housing and credit is still firm,” Haron said.
Haron added that with inflation proving stubborn and global tensions lifting key costs, borrowers should be planning for the possibility of more tightening.
“In this environment, planning matters - understanding cash flow, maintaining buffers and reviewing options early can make a real difference,” he said.
He also warned that the hike would be felt by highly leveraged households, and said brokers had a crucial role in helping clients test their resilience.
“Brokers therefore need to step in early, helping clients stress‑test repayments, strengthen budgets and make sure their loan structures can hold up if conditions tighten further,” he said.
Mortgage Choice chief executive Anthony Waldron described the RBA’s decision as a second, deliberate step higher this year, noting that the Board had chosen to act ahead of key data releases.
“While the latest inflation and employment data isn’t due to be published until later this month, the Board has clearly prioritised pre-emptive action over a wait-and-see approach,” he said.
“For borrowers, today’s decision represents an increase of $113 to the monthly home loan repayment on a $700,000 home loan with a 6 per cent interest rate.”
Waldron stressed that fixing was a strategic choice as opposed to an automatic solution, and argued that tailored advice was essential as borrowers weigh structure and flexibility.
“The peace of mind that comes with knowing what your repayments are can be particularly appealing. However, a fixed rate isn't a one-size-fits-all solution. This is why expert advice is essential,” Waldron said.
He added that the pace of change in the rate environment meant broker guidance had become even more critical in helping clients reassess their loans.
“In a rapidly changing market, the expertise of a mortgage broker is more important than ever for borrowers,” he said.
Speaking before the decision was handed down, Finance Brokers Association of Australia (FBAA) interim CEO Peter White said the association had argued strongly against a March hike.
“The FBAA has urged the RBA to resist raising interest rates until the full economic impact of the Middle East conflict is known,” he said.
White stressed that the cost‑of‑living shock from higher fuel and transport costs had not yet fully hit households, and that the lag made an immediate hike risky.
“We expect that not only will fuel costs increase but this will flow through to other supply chain increases and potentially add hundreds of dollars every month to the average household budget,” he said.
He cautioned that combining higher interest rates with these looming price rises could see many borrowers, particularly recent entrants to the market, pushed beyond their limits.
Mortgage and Finance Association of Australia chief executive Anja Pannek said the move underlined that the RBA remained squarely focused on bringing inflation back inside its 2–3 per cent band.
She noted that domestic price pressures were proving resilient and that the Middle East conflict had added another layer of uncertainty.
“We are seeing domestic inflationary pressures persist and the ongoing conflict in the Middle East is impacting global economic volatility, which will also ultimately flow through to prices in Australia,” she said.
“The reality is that higher borrowing costs are now becoming a feature of the economic environment.”
Pannek said borrowers were responding to the new phase of higher rates and cost‑of‑living pressures by pulling back on spending and paying closer attention to their repayments and budgets.
Despite the tougher backdrop, she stressed that borrowers still had levers they could pull on, particularly by working with brokers.
“Mortgage brokers are well placed to help borrowers review their loan structure, negotiate better rates with their existing lender or explore refinancing options across the market,” she said.
“In a more complex lending environment, brokers play an important role in helping borrowers understand their options and make informed financial decisions.”
The rise is set to elevate average variable rates for owner-occupiers to roughly 5.99 per cent, effectively eliminating home loan rates starting with a four from the market, according to comparison website Canstar.
This would increase mortgage repayments for the average $736,259 loan by around $106 - $116 per month and roughly $1,380 per year per year.
Where to from here?
Financial markets were generally expecting a 25-basis point increase to 4.10 per cent, with the ASX 30 Day Interbank Cash Rate Futures trading at 96.085 as of 16 March, indicating 58 per cent probability of a hike.
Yet this was down from 71 per cent as of March 13.
The shift to a renewed tightening cycle has been driven by stubbornly high inflation, a tight labour market, increasingly hawkish rhetoric from the RBA’s leadership and a rapid surge in fuel costs sparked by the ongoing military conflict in the Middle East.
The RBA’s preferred trimmed mean inflation for January came in at 3.4 per cent, while headline inflation held steady at 3.8 per cent in the 12 months to January 2026 – far exceeding the Board’s 2-3 per cent band.
Unemployment has also been consistently low, coming in at 4.1 per cent in January – heightening concern that monetary policy may not have been as restrictive as previously assumed.
All four major banks lined up behind a unified call that the cash rate would be raised in March and May, after shifting their existing predictions of a single May rise.
The Commonwealth Bank (CBA), Westpac, Australia and New Zealand Banking Group (ANZ), and National Australia Bank (NAB) all forecasted a 25-bp March hike to 4.10 per cent, followed by another move to 4.35 per cent in May.
Major bank economists said that the combination of above target inflation, low unemployment, robust GDP growth and climbing oil prices left the RBA with little room to sit on its hands.
Looking further ahead, all four majors said the RBA would ease the cash rate after an extended period at a higher peak.
The next cash rate decision will be announced on 5 May 2026
[Related: RBA tipped to increase the cash rate today]
