Knowledge Centre

RBA keeping an eagle eye on inflation

31/03/2025

If you want to know what will happen to interest rates over the course of 2025, pay close attention to inflation.

That’s because the decisions the Reserve Bank of Australia (RBA) has made regarding the cash rate over the past three years have been inextricably linked to inflation.

• The reason the RBA started increasing the cash rate in 2022, and continued in 2023, was because it felt inflation was getting out of control: raising rates was meant to reduce economic activity and thereby put downward pressure on prices growth.
• The reason the RBA kept the cash rate on hold throughout 2024 was because it felt inflation was too low to justify further rate hikes but too high to justify a rate cut.
• The reason the RBA reduced the cash rate in February 2025 – from 4.35% to 4.10% – was because of “the progress that had been made in reducing inflation,” according to the minutes of the meeting.

The RBA aims to keep annual inflation between 2-3%. In January, inflation came in at 2.5%, which was the sixth consecutive month it had been within the RBA’s target range, according to the Australian Bureau of Statistics.

However, the RBA has forecast that inflation will rise to 3.7% by the end of 2025, before falling to 2.8% by the end of 2026.