Minutes of the March 2026 Monetary Policy Board Meeting

Minutes of the Monetary Policy Board Meeting

Hybrid – 16 and 17 March 2026

Members participating

Michele Bullock (Governor and Chair), Andrew Hauser (Deputy Governor and Deputy Chair),

Notes

Marnie Baker AM, Renée Fry-McKibbin, Ian Harper AO, Carolyn Hewson AO,
Bruce Preston, Iain Ross AO, Jenny Wilkinson PSM Others participating Sarah Hunter (Assistant Governor, Economic), Brad Jones (Assistant Governor, Financial System),
Christopher Kent (Assistant Governor, Financial Markets) Anthony Dickman (Secretary), David Norman (Deputy Secretary) Meredith Beechey Osterholm (Head, Monetary Policy Strategy), Andrea Brischetto (Head,
Financial Stability Department), Sally Cray (Chief Communications Officer), David Jacobs (Head,
Domestic Markets Department), Michael Plumb (Head, Economic Analysis Department),
Penelope Smith (Head, International Department) Financial conditions Members commenced their discussion of financial conditions by considering the impact on markets of the
current conflict in the Middle East. Global prices for oil and other forms of energy had risen sharply,
short-term inflation expectations had picked up and financial market volatility had increased. The
conflict was likely to pose a material adverse supply shock to the global economy, though members agreed
that the eventual scale and persistence of the shock was highly uncertain at the time of the meeting.
Consistent with that, market prices had continued to be volatile as market participants revised their
assessment of the potential implications in response to the flow of information. Members noted that,
despite the pronounced volatility, financial markets had so far continued to function effectively. Market expectations for future central bank policy rates had risen materially in almost all economies
since the onset of the current conflict, in anticipation of increased near-term inflationary pressures.
This included some central banks that had previously been expected by market participants to lower rates
over 2026, such as the US Federal Reserve and the Bank of England, which, at the time of the meeting,
were expected to hold rates steady or possibly raise them. Members discussed why markets did not expect
most central banks to look through the supply shock emanating from the conflict. They noted that this was
more difficult to do when the shock was expected to be large and inflation had been above target for some
time (as was the case in many economies). Government bond yields had increased since the start of the current conflict in the Middle East, including
in Australia. The largest increases had occurred in countries where near-term expectations for policy
rates or inflation had increased most sharply in response to the outlook for higher energy prices or
inflation. Market-implied measures of longer term inflation expectations were still well anchored in most
countries, including in Australia, as markets expected central banks to adjust monetary policy as
required. Risk premia in equity and corporate bond markets had risen a little since the onset of the current
conflict, including in Australia, but remained low overall. The largest falls in equity prices had been
in economies that were large net energy importers, such as the euro area, the United Kingdom, Japan and
Korea. In some Asian markets, these declines had merely offset strong gains earlier in the year. By
contrast, the decline in US equity prices since the onset of the conflict had followed their earlier
underperformance arising from concerns about the effect of artificial intelligence (AI) on corporate
profitability and vulnerabilities in private credit markets. Members turned to assessing the stance of financial conditions in Australia. While financial conditions
had tightened in prior months, and particularly since the start of the current conflict in the Middle
East, incoming data continued to suggest that this had occurred from a less restrictive position in the
second half of 2025 than previously assessed. Accordingly, the extent to which overall financial
conditions were restrictive at that time remained a matter of some uncertainty. The tightening in financial conditions over prior months had been driven primarily by higher market
interest rates. Banks had passed on the increase in the cash rate in February to borrowers and market
prices implied that expectations for the future path of the cash rate had shifted up further since the
previous meeting. There were tentative signs that the earlier rise in cash rate expectations had weighed
a little on credit demand. Members considered a range of recent indicators that suggested financial conditions were not especially
restrictive. Spreads between bank lending rates and the cash rate remained low compared with most of the
preceding 20 years, even though risk premia had widened a little since the start of the current
conflict in the Middle East. Growth in credit had exceeded growth in GDP in the December quarter, despite
having since slowed a little; both household and business credit were rising at the time of the meeting
relative to the relevant measures of income, with growth in business credit particularly strong. However,
members also noted that households had continued to make relatively large extra mortgage payments, which
could be consistent with more restrictive monetary policy encouraging a higher saving rate. Members noted that several other metrics also suggested that policy might be somewhat less restrictive
than previously assessed. The cash rate sat within the range of model-based central estimates of the
neutral rate. These had generally moved a little higher over 2025, suggesting that any given cash rate
might be somewhat less restrictive than previously. Members noted that such estimates are subject to
considerable estimation error and do not provide a direct guide to the appropriate stance of monetary
policy. Nevertheless, they were consistent with the staff’s February inflation forecasts, which did
not have inflation fully returning to the midpoint of the target range over the forecast period even with
a technical assumption of at least one more increase in the cash rate. Members also observed that the
real short-term interest rate had fallen in preceding months, given the rise in actual and expected
near-term inflation. Members explored the rise in market expectations for the cash rate since the previous meeting. The rise
had reflected stronger-than-expected data, recent increases in energy prices and RBA communication.
Market pricing indicated a 70 per cent probability of a 25 basis point rate increase at
the current meeting and a greater than 100 per cent probability of a rate rise by May, with a
further increase fully priced by August. Overall, the expected market path was around 35 basis
points higher at the end of 2026 compared with the path assumed in the February forecasts. The median of
market economists’ expectations was for an increase in the cash rate in March and another by August. The Australian dollar had appreciated a little further over February. The current conflict in the Middle
East had modestly increased volatility in foreign exchange markets, but the direct effect on the
Australian dollar had so far been limited; the depressing effect of weaker global risk sentiment had been
offset by a boost from wider yield differentials (reflecting increased cash rate expectations in
Australia) and higher commodity prices. Members noted that the appreciation of the Australian dollar had
been broadly based across major currencies and trading partners and had contributed to a further modest
tightening in financial conditions. However, members reiterated their observation from the previous
meeting that this response is consistent with the standard transmission of monetary policy, not
additional to it. Economic conditions Members noted that the economic data received since the previous meeting had, on balance, been broadly
aligned with the forecasts in the February Statement on Monetary Policy , but that their
composition pointed to slightly higher domestic capacity pressures than previously assessed. In
particular, labour market conditions were judged to be slightly tighter than expected and, consistent
with that, model-based estimates of the output gap – which had already indicated excess demand
– had been revised slightly higher. Survey measures of firms’ capacity utilisation had also
remained above average. GDP growth in Australia had picked up strongly in the December quarter, exceeding the staff’s
estimate of the potential growth rate and adding to existing capacity pressures. Overall growth in the
quarter had been as expected but the composition of spending had showed stronger-than-expected exports,
inventory accumulation and business investment, offset by significantly weaker-than-expected household
consumption (with public demand broadly as expected). Over 2025, there had been strong growth in total
private demand, with consumption, business investment and dwelling investment all contributing. Labour
productivity growth had increased over 2025 to around the staff’s assumption for its medium-term
trend. Members noted that the staff’s expectation for overall GDP growth in the March quarter was broadly
unchanged (with most of the potential impacts on growth from the current conflict in the Middle East
likely to take longer to become apparent). The weaker-than-expected outcome for consumption in the
December quarter, coupled with more recent monthly indicators (including timely but volatile private bank
data on household spending) had suggested some downside risk to the level of household spending in the
March quarter. But strong growth in real household disposable incomes and wealth had continued to support
a solid near-term outlook. The near-term outlook for business investment and exports had also
strengthened; the staff’s assessment was that investment would continue to be supported by spending
related to technology and the energy transition, and that exports would be supported by resilient trading
partner growth (underpinned by the global AI boom). Members noted that several indicators suggested that labour market conditions in Australia may have
tightened a little since the previous meeting. The unemployment rate was unchanged in January, against
expectations for some unwinding of the decline in December 2025. Average hours worked, job advertisements
and employment intentions from liaison information had all ticked up over preceding months and the rate
of layoffs had trended slightly lower in late 2025. Growth in the private sector wage price index in the
December quarter had also been marginally stronger than expected, and revisions to historical data no
longer implied that it had slowed over 2025. By contrast, growth in the national accounts measures of
average earnings and unit labour costs had eased by more than expected in the December quarter. Members
noted that this might be a sign that the labour market had been somewhat looser in late 2025 than
assessed, but that it was too early to take much signal from these measures in view of their volatility. On inflation, the staff judged that the monthly CPI data for January were consistent with the forecast at
the previous meeting that underlying inflation would remain high in the March quarter, before easing
somewhat as less persistent drivers unwound. Members noted that Australia was not unique in experiencing
ongoing inflationary pressures – other countries were also seeing underlying inflation remaining
somewhat above their central banks’ targets. Members considered the various components of the January CPI data. Market services inflation had increased
in January by a little more than expected and the staff judged it was likely to remain above its long-run
average in the March quarter. By contrast, consumer durables inflation was still expected to ease in the
March quarter, with the weaker-than-expected outcome for household consumption in the December quarter
2025 supporting this judgement. Housing inflation in January was slightly below expectations but was
expected by the staff to remain firm in the March quarter before easing thereafter.
Members noted that this profile of slowing housing inflation was consistent with growing expectations
from the second half of 2025 that financial conditions would tighten. Having considered the domestic data, members discussed how the current conflict in the Middle East could
affect future economic activity and inflation in Australia. While the situation was highly uncertain, it
was already clear that global energy production and distribution had been disrupted significantly and
that there had been considerable increases in the global prices of oil and natural gas. Higher petrol
prices would flow through directly to headline inflation in Australia (and globally) in the near term.
While a full update of the forecasts had not yet been prepared, the staff shared a simple estimate that
the direct effect (via petrol prices) of oil prices remaining around US$100 per barrel would on its
own lift headline inflation in Australia to around 5 per cent over the year to the June
quarter, around ¾ of a percentage point higher than had been expected in February. Sustained higher
oil prices would also boost inflation more broadly over time as input costs for firms rose and some of
this effect was passed onto consumers. Members noted that, consistent with this analysis, short-term
inflation expectations had increased further following the onset of the current conflict. They discussed
the importance of ensuring that longer term inflation expectations remain consistent with the inflation
target. Members noted that a full assessment of the impact of the current conflict in the Middle East on inflation
over the medium term also needed to take account of the impact on domestic economic activity. The
immediate effect of higher energy prices would be to constrain the economy’s productive capacity,
depressing output. However, there are offsetting effects that could potentially cushion that initial
impact. For example, members noted that while Australia is a net importer of oil, it is a net exporter of
energy. As a result, higher petrol prices would tighten household budgets and reduce real consumer
spending, but higher liquified natural gas (LNG) prices would lift export revenue and could raise
national income in aggregate if Australia’s overall terms of trade were to increase as a result.
Members noted that the net effect of these opposing forces depends on how different sectors respond to
the reallocation of real incomes, but that this could not be known with certainty at this early stage. Members discussed other risks to the global economic outlook from the current conflict, including that
disruptions to global supply chains could become more pronounced, uncertainty could weigh on business and
household spending and that rising global risk premia could cause financial conditions to tighten
sharply. The reaction of the Australian dollar exchange rate to developments would also be a key factor
in determining the overall effects on domestic economic activity and inflation. Financial stability assessment Members turned to their semi-annual consideration of financial stability risks. They noted that while
global financial stability risks had been high and rising, Australia’s financial system had
established a good degree of resilience to absorb shocks. At the same time, the RBA and other agencies of
the Council of Financial Regulators had continued to stress the importance of ongoing work by industry to
strengthen its ability to respond to liquidity, operational and geopolitical shocks, and to safeguard
lending standards amid an upswing in credit growth. A key risk identified by the staff was the increasing potential for a disruptive repricing in global
financial markets. This risk had been amplified by a material increase in leverage and concentration in
key global capital markets over preceding years, while risk premia had remained low. Members noted that
advanced economy sovereign debt markets abroad could become more prone to shocks. This reflected the
large and growing stock of sovereign debt (which could lead to concerns over debt sustainability)
combined with the growing role in these markets of leveraged, price-sensitive investors. Members noted
that a period of severe global market stress – whatever its source – could increase financing
costs sharply and restrict access to funding and liquidity both globally and domestically, although
Australian banks had become less reliant on overseas funding over time. Growing operational complexity and interconnectedness of financial systems had also increased the risk
that operational and cyber incidents might have systemic consequences for the financial system. The
geopolitical environment – including recent developments in the Middle East – had further
heightened this risk. In considering the resilience of the Australian financial system, members noted that housing-related
vulnerabilities had so far remained contained. Investor housing credit growth had picked up strongly, but
investors tended to have higher incomes and historically had been less likely to default than other
borrowers. Investor activity could nonetheless contribute to unsustainable increases in housing prices
and leverage, and potentially erode lending standards as other borrowers attempted to enter a rising
market (though this had not been apparent to date). Members noted that the Australian Prudential
Regulation Authority (APRA) had activated limits on high debt-to-income (DTI) lending to protect against
a material build-up of vulnerabilities. They observed that high DTI lending to investors had increased
but remained well below the new limits. For owner-occupier borrowers, higher interest rates and inflation would be likely to increase budgetary
pressures. However, mortgagors across the income distribution had continued to build up their saving
buffers over the prior year or so and most maintained solid cash flow positions. Most Australian businesses had also remained resilient over the preceding year, although conditions had
been challenging for some industries even prior to the recent energy price rises. Credit had been readily
available and competition among lenders had remained strong. There had been a slight easing in lending
standards for some businesses, particularly those involved in commercial real estate, but there had been
little evidence of a broader decline in business lending standards. Members noted that Australian banks remained in a strong position to continue supporting the economy, even
if there were an economic downturn. Banks were well capitalised and provisioned and their holdings of
liquid assets exceeded regulatory requirements. However, regulators around the world – including
APRA –continued to consider whether prevailing liquidity risk frameworks remain appropriate given the
speed with which liquidity stress can now materialise. Members discussed the risks from rapid private credit growth internationally. They noted the opaqueness of
lightly regulated activities and linkages with the banking system in some countries. In Australia, growth
in non-bank lending had also been strong and had the potential to result in increased loan losses in the
future. However, members noted that the direct financial stability risks from this activity in Australia
were limited by the relatively small size and structure of the non-bank sector. Members concluded their consideration of financial stability risks by discussing the risks posed by the
large and growing superannuation sector. They recognised that this sector historically had been a
stabilising force in the financial system but had the potential to amplify stress in the future. These
risks will be heightened by an increasing number of Australians drawing retirement income streams from
the system. Members noted that this warranted a further strengthening of superannuation funds’
governance, liquidity and operational risk management practices, which would remain a key focus for
regulators. In light of this analysis, members judged domestic financial stability considerations posed no immediate
issues for monetary policy. Close monitoring was nevertheless required given the rapidly evolving risk
environment. Considerations for monetary policy Members noted that inflation remained too high, the economy was operating with excess demand and the
staff’s assessment was that the extent of excess demand had increased slightly since the previous
meeting. Labour market conditions were assessed to have tightened a little further relative to the level
consistent with full employment, notwithstanding an easing in growth in unit labour costs.
Forward-looking indicators suggested that the labour market was likely to remain resilient in the near
term. Members agreed that the rise in oil prices would increase inflation significantly in March. Short-term
inflation expectations had risen in response, but measures of long-term inflation expectations had been
stable to date (including because investors remained confident that monetary policy would respond
appropriately). Members agreed that the reduction in oil supply and associated higher prices would
probably also reduce economic activity domestically and internationally. However, this would depend on
the evolution of the current conflict in the Middle East, how various sectors responded to the resulting
reallocation of income and how the conflict affected domestic sentiment and global demand. Members agreed
that it was not possible to be confident about either the future evolution of the conflict or how these
various factors would play out over the longer term. Although financial conditions had tightened a little since the previous meeting, members acknowledged that
the extent to which monetary policy was restrictive was still uncertain. They agreed that financial
stability considerations held no immediate implications for monetary policy. In light of these observations, members considered the arguments for and against raising the cash rate
target. Members agreed that further tightening in monetary policy would likely be required in the near term to
bring inflation back to target within a reasonable timeframe. They observed that the forecast at the
previous meeting had been for inflation to remain above target for some time and still to be slightly
above the midpoint of the target range at the end of the forecast period, even under a technical
assumption that incorporated a further increase in the cash rate. The rise in oil prices had further
increased the risk that inflation would remain above target for a prolonged period. Members also noted
that downside risks to the outlook for the labour market had abated over prior months. Given these
observations, members agreed that financial conditions needed to be restrictive and that it was not clear
that they were sufficiently so at present. Having agreed that some near-term tightening was likely required, members then considered whether that
should begin at this meeting or in the near future. The case to increase the cash rate target at the current meeting was founded on a view that the risk that
inflation may not return to target within a reasonable timeframe had increased enough to warrant an
immediate response. Members noted that this view could be supported by the presence of widespread
capacity pressures, an assessment that there was a little more excess demand in the economy than had been
judged previously, and the scale of the likely inflationary effect of the rise in global oil prices.
Members agreed that monetary policy could not prevent a near-term increase in inflation induced by
sharply higher petrol prices, but that it could reduce the risk that this would flow into persistent
inflationary pressures (in an economy that was already in a position of excess demand). In particular,
members noted that tighter monetary policy could constrain future price rises by curtailing any upward
pressure on inflation expectations and reducing the extent to which higher costs would be passed on to
final prices. The case to raise the cash rate target at this meeting could be further strengthened if members judged
that the labour market remained tighter than was consistent with full employment and that the risk of
this unwinding quickly had declined. Members noted that such a judgement could be supported by the
staff’s assessment of conditions in the labour market and the signal from a range of indicators that
near-term labour demand remained firm. It could be further strengthened if members concluded, based on
trends in the unemployment rate and other indicators, that the labour market may have tightened a little
since mid-to-late 2025. Members acknowledged that these indicators pre-dated the onset of the current
conflict in the Middle East, which, if it persisted, could lead to a reduction in labour demand. However,
they noted that the immediate effect of higher oil prices is to reduce aggregate supply, further
exacerbating existing capacity pressures, with aggregate demand subsequently responding to a rise in
prices. They recognised that the conflict could subsequently also result in an additional contraction in
aggregate demand as sentiment and global demand weakened, but this would depend on how the conflict
evolved, the willingness of households to adjust their saving rate and the potential cushioning effect on
aggregate national income of higher LNG prices. Finally, the case to raise the cash rate target at this meeting would be further strengthened if members
formed the view that financial conditions were insufficiently restrictive or even accommodative. Members
discussed the extent to which such a judgement could be supported by the February forecasts, trends in
credit growth, developments in market risk premia and model estimates of the neutral interest rate. This
judgement would also be strengthened if members concluded that higher short-term inflation expectations,
including as the result of the current conflict in the Middle East, had depressed short-term real
interest rates. The case to keep the cash rate target unchanged at the current meeting centred on concerns about the
effect of heightened uncertainty on the outlook for the economy. This uncertainty, stemming especially
from the current conflict in the Middle East, could mean that the potential benefits of waiting for a
little more information outweighed the potential costs, even with the presumption that the cash rate
target would probably need to be increased further at some point. One source of uncertainty centred on the outlook for domestic economic growth. Members noted that while
private demand growth had picked up as expected in the December quarter 2025, the outcome for consumption
had been weaker than expected. Taken together with the signal from indicators of household spending in
the March quarter, the dampening effect of higher petrol prices on real household disposable income and
subdued consumer confidence, there was a risk that consumption growth would be weaker than forecast in
February. Given the possibility that this could lead to weaker GDP growth, there was a case to wait for a
little more data to assess the degree of inflationary pressure coming from excess demand. A second source of uncertainty surrounded the extent of tightness in the labour market. Members noted that
the monthly labour force survey data are volatile and need to be considered over a span of months. They
highlighted the significant slowing in the national accounts measures of average earnings and unit labour
costs, which might be a signal that the labour market was less tight than had been assumed (while
recognising these indicators are also volatile). And members hypothesised that a rise in the cost of
living could prompt workers to enter the labour market, as had been the case two years earlier, reducing
labour market tightness. A final source of uncertainty related to how the current conflict in the Middle East would evolve. There
was considerable uncertainty about almost every aspect of the conflict at this early stage and therefore
its impact on global and domestic economic conditions. While a near-term increase in inflation was almost
inevitable, a persistent or greater disruption could result in weaker growth in aggregate demand as well
as supply, with uncertain implications for medium term inflationary pressures. Members noted that, given
these uncertainties, leaving the cash rate on hold at the current meeting and monitoring developments
over subsequent weeks may help to calibrate the monetary policy reaction more effectively. Having considered these arguments, a majority of members judged that the case to raise the cash rate
target at the current meeting was the stronger one. These members judged that inflation had already been
projected to remain above target for some time in the February Statement and that the risks
around this assessment had tilted further to the upside, given both domestic and international
developments. These members recognised the pervasive uncertainties over the current conflict in the
Middle East. But they noted that developments in the Middle East would further reduce the already
constrained supply capacity of the Australian economy, increasing inflationary pressures for any given
level of aggregate demand. Indeed, developments in the Middle East would add to global and domestic
inflation under a wide range of scenarios. These members also noted that the impact of the current conflict on the outlook for aggregate demand
remains uncertain, given Australia’s position as a net energy exporter and households’
generally healthy balance sheets. Moreover, these members judged that financial conditions were not
sufficiently restrictive to reduce the margin of excess capacity. They therefore judged it important to
demonstrate a clear commitment to returning inflation to target, noting that if medium- and long-term
inflation expectations increased, it would ultimately require significantly more contractionary monetary
policy to achieve the Board’s objectives. These members conceded that it would be important to
monitor downside risks to future demand closely, but if growth were slightly slower than expected this
could contribute to the Board achieving its objectives sooner, given the starting point of excess demand.
They noted that the Board’s ability to respond effectively to a more material contraction in
aggregate demand, should it occur, would not be impaired by raising the cash rate target by 25 basis
points at this meeting. A minority of members judged that the case to leave monetary policy unchanged at the current meeting was
the stronger one. These members reiterated that inflation was too high and that a further tightening in
monetary policy would probably be required. However, they assessed that the domestic data received since
the previous meeting had not unambiguously signalled that excess demand was greater than the Board had
previously assessed. They also placed more weight on the weaker-than-expected consumption outcome and
slowing in the growth in unit labour costs in the December quarter 2025, and were less convinced that the
labour market may have tightened further. And, while they agreed that financial conditions would probably
need to become more restrictive, they felt there was merit in delaying any tightening of monetary policy
until the potential effects of the current conflict in the Middle East become clearer. Given these
factors, these members judged that there was merit in waiting a little longer before making the decision
to raise the cash rate target. They noted that doing so would allow the Board time to gather more
information that could prove helpful in informing future responses. Having decided by majority to raise the cash rate target at this meeting, members considered the
implications of their deliberation for upcoming decisions. They agreed that it was not possible to
predict the future path for the cash rate target with any confidence, given the high degree of
uncertainty around the breadth and duration of the current conflict in the Middle East. A longer conflict
could have a material bearing on both inflation and economic activity. Members therefore acknowledged
that future policy decisions would require the Board to balance its two objectives carefully. In finalising its statement, the Board agreed to remain attentive to the data and the evolving assessment
of the outlook and risks when making its decisions. The Board will remain focused on its mandate to
deliver price stability and full employment and will do what it considers necessary to achieve that
outcome. The decision The Board resolved by majority to raise the cash rate to 4.10 per cent. Five members voted in
favour; four members voted to leave the cash rate target unchanged at 3.85 per cent.