March 2026
The Reserve Bank of Australia (RBA) Board decided to increase the cash rate by 0.25% to 4.10% at its March meeting.
While the move was largely expected by markets, the decision by the Board was not unanimous with five members in favour of the increase and four in favour of holding. This a notable shift from the unanimous decision in February and signals a Board that is becoming more divided as rates move higher and the upside cases for inflation become harder to predict.
The key new development since February is the escalating conflict in the Middle East, which has driven sharply higher oil and fuel prices. The Board flagged this as a material upside risk to inflation, with short-term inflation expectations already rising in response.
Key changes from the February statement were as follows:
- The addition of the Middle East conflict as a significant new risk factor, with the Board warning that a prolonged or more severe conflict could add to both global and domestic inflation, while simultaneously weighing on growth in Australia’s major trading partners
- A subtle shift in the composition of demand – business investment surprised to the upside in the December quarter while household consumption came in below expectations, which may reflect early signs of rate sensitivity among consumers.
- Unit labour costs declined slightly since the last statement in February, a modestly encouraging signal on the inflation outlook from the cost side.
- Housing price growth moderated somewhat at the start of 2026, though the broader housing market remains elevated following strong growth over the past year
- Financial conditions described as having “tightened a little” since February, though the Board continues to note uncertainty about the degree to which policy is restrictive
- Inflation expectations rising was flagged as a growing concern, with the Board explicitly citing the risk of above-target inflation becoming more entrenched.
Whilst the Board continues to assess that some of the pick-up in inflation reflects temporary factors, it judged that risks have tilted further to the upside, with the Middle East situation adding a new and unpredictable dimension to that assessment.
The split decision is significant. Four dissenting votes suggest a meaningful faction within the Board believes current settings are already sufficiently restrictive. This internal tension will be closely watched heading into the next meeting, particularly if fuel price pressures begin to ease or if consumption data deteriorates further.
Following the announcement, Australian government bond yields rose (prices lower), the AUD/USD fell, and Australian equities rose.alian equities moved higher, possibly implying investors might be hopeful the RBA is done. Time will tell.
Written by Christopher Lioutas
Chairman – Harbourside Investment Management
