The Reserve Bank of Australia signaled a shift toward heightened vigilance, opting to raise the cash rate by 25 basis points following a troubling spike in underlying price pressures.
In minutes released from the February policy meeting, the board revealed that the decision to move the rate beyond 3.6% was driven by evidence that inflation had "crystallized" as a major risk in late 2025.
Central to the RBA’s concern is the observation that financial conditions may no longer be sufficiently restrictive to curb demand.
Despite a strengthening Australian dollar and rising market expectations, the board noted that banks continue to "lend freely," with credit growth remaining robust.
This environment has led to a persistent gap between supply and demand, with the RBA warning that excess demand is unlikely to correct itself without a proactive policy response.
While the board remains committed to a "narrow path"—aiming to return inflation to its target range without sacrificing the significant gains made in the labour market—it emphasised that the current outlook has "materially shifted."
Members acknowledged that if supply constraints tighten further or if inflation expectations begin to de-anchor, more aggressive action may be required.