Key Highlights

  • The cash rate was cut three times in 2025, from 4.35 to 3.60 per cent.
  • It has since been raised five times in 2026, a total of 125 basis points.
  • The cash rate now sits half a percentage point above where easing began.
  • The cycle has moved past its starting point in less than two years.

The Reserve Bank of Australia's cash rate has just completed a round trip that overshot its starting point.

Between February and August 2025, the RBA cut the cash rate target three times, from 4.35 per cent to 3.60 per cent. Between February and November 2026, the Monetary Policy Board raised it five times, to 4.85 per cent. The latest rise, announced on 3 November and effective on 4 November, takes the target 50 basis points beyond the level at which the cuts started.

This explainer traces both legs of the journey using the RBA's cash rate history and its latest published assessments, and looks at what the Bank itself has said about why the direction reversed.

Leg one: the 2025 easing

The RBA's cash rate history records three reductions in 2025, each of 25 basis points:

  • 19 February 2025: cut to 4.10 per cent.
  • 21 May 2025: cut to 3.85 per cent.
  • 13 August 2025: cut to 3.60 per cent.

That amounted to 75 basis points of easing. Before the first of those cuts, the target stood at 4.35 per cent.

The material available does not include the RBA's statements from 2025, so it does not attempt to explain the reasons for each cut. What does provide useful context is Governor Michele Bullock's account of the longer Inflation story, given in her opening statement to the Senate Economics Legislation Committee on 28 October 2026: "Inflation fell significantly from its peak of 7.9 per cent at the end of 2022".

Leg two: the 2026 tightening

After the August 2025 cut, the next move in the RBA's cash rate history is the rise that took effect on 4 February 2026. From there, the tightening went as follows, by effective date:

  • 4 February: 3.85 per cent.
  • 18 March: 4.10 per cent.
  • 6 May: 4.35 per cent.
  • 30 September: 4.60 per cent.
  • 4 November: 4.85 per cent.

The meetings on 16 June and 11 August 2026 left the rate unchanged. Five rises of 25 basis points add up to 125 basis points.

There is a neat symmetry in the first half of the tightening. The first three rises of 2026 exactly reversed the three cuts of 2025, step for step, with the rate passing back through 3.85 and 4.10 per cent before returning to 4.35 per cent in May. The "and then some" came later, with the September and November rises.

Why the direction changed

The Board's November statement is the clearest guide to the thinking at the end of the second leg. Its message is that inflation has proved more persistent than expected.

"Inflation remains elevated and recent data indicate that it is broadly based," the statement says. And: "Since the previous meeting, the data have confirmed that underlying inflation remains broadly based."

Governor Bullock's 28 October Senate statement put the recent level this way: "Recently, inflation has been around 3½ to 4 per cent in year-ended terms." She also pointed to a structural constraint: "continued weak productivity growth means that the economy cannot grow strongly without putting pressure on inflation."

The latest data line up with that description, provided the measures are kept separate:

  • Headline CPI rose 4.3 per cent over the year to September 2026 on the monthly measure.
  • Headline CPI rose 3.9 per cent over the year to the September quarter.
  • Trimmed mean (underlying) inflation was 3.7 per cent over the year to the September quarter, and 1.0 per cent in the quarter itself, up from 0.8 per cent in the June quarter.

Energy has added to the problem. The November Statement on Monetary Policy (SMP) says higher energy prices from the Middle East conflict have added to inflation pressures. The RBA's oil price assumption for the December quarter of 2026 is 35 per cent higher than it was in August.

The RBA's forecasts now show both headline and underlying inflation above 3 per cent until end-2027. The statement says inflation is expected to return to the top of the 2–3 per cent target range in late 2027, about three quarters later than previously forecast.

For the six members who voted for the November rise, the decisive concern was expectations: "there is an increasing risk that higher inflation expectations will become embedded." Three members voted to hold at 4.60 per cent; the statement gives no reasons for their view.

What the overshoot means for the economy

A cash rate that is higher than before the easing cycle began is a significant tightening, and the RBA acknowledges its effects. The statement says: "The increases in the cash rate target since the beginning of the year have tightened financial conditions."

The SMP adds that the Board judges financial conditions to be restrictive, although the extent is uncertain, and that government bond yields are at multi-year highs.

The real economy is cooling. "The economy is slowing," the statement says. GDP grew 0.4 per cent in the June quarter. Housing prices have fallen about 5 per cent from their March peak, according to the SMP. Unemployment rose to 4.7 per cent in September 2026.

Credit, however, is still growing. The RBA's Financial Aggregates for September 2026 show total Credit up 8.4 per cent over the year, with housing credit up 7.0 per cent and Business credit up 11.3 per cent.

As for whether the round trip has further to run, the RBA's forecasts assume a cash rate path based on market pricing as at 28 October 2026, which implied the cash rate rising about 35 basis points by mid-2027 before stabilising at 4.8 per cent in 2028. That is the market's view, not an RBA commitment. The Board says it "will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions." The next decision is on 8 December.

Lenders set their own rates, so the journey of individual Loan rates over this period will not necessarily mirror the cash rate step for step.

The bottom line

The cash rate has travelled from 4.35 per cent down to 3.60 per cent in 2025, then back up to 4.85 per cent in 2026: 75 basis points of cuts followed by 125 basis points of rises. The first three 2026 rises simply undid the 2025 easing; the September and November moves pushed beyond it. The RBA's stated reason is inflation that remains broadly based, on both headline and underlying measures, and a growing risk that higher expectations take hold, even as the economy slows.