The Reserve Bank of Australia has confirmed another rise in interest rates, with the cash rate target increased by 25 basis points to 4.35 per cent. 

Exactly one week before the Federal Government delivers its budget for 2026 to 2027, the RBA said its latest hike was a result of rising inflation, increased fuel and commodity prices, along with “early signs that many firms experiencing cost pressures are looking to increase prices”.

The increase negates all three rate decreases during 2025 and adds $4200 a year to the average Australian mortgage.

Eight members of the RBA’s monetary policy board voted for the increase, with one member voting to leave the cash rate target unchanged at 4.1 per cent.

Speaking to 7News ahead of the long-expected rate hike, Australian Retail Council CEO Chris Rodwell said it would be yet another blow to the industry.

“I’ve never met a retailer yet that likes an interest rate increase,” Rodwell said. “Given the levels of consumer confidence, given the uncertainty, given the supply chain impacts, it’s going to be tough to accept an interest rate increase because that goes straight into retail spending.”

Interest rates were lifted in early February for the first time since November 2023, following a series of reductions. They were increased again in March.

“The bank has updated its forecasts to incorporate recent data and developments in the Middle East,” the RBA added. “The baseline forecast, which assumes that the conflict is resolved soon and fuel prices decline, sees underlying inflation peaking higher than was expected in February. It then declines as demand growth slows and capacity pressures ease in response to higher interest rates.”

The RBA said it expects inflation to stay above its 2 to 3 per cent target “for some time”. It also expects spending to slow, while unemployment levels begin to increase.

“Retailers are doing everything they can to absorb higher costs, but the environment is becoming increasingly difficult,” ARC chief economist Glenn Fahey said. “Margins are under pressure from both sides, with softening demand ahead and rising input costs occurring at the same time.”

Fahey described the current situation as a ”cost-of-doing-business crisis”; he called on the Federal Budget to implement cost-reducing reforms to help mitigate this.