The Reserve Bank of Australia (RBA) has raised the cash rate target by 25 basis points to 3.85%.

“While inflation has fallen substantially since its peak in 2022, it picked up materially in the second half of 2025,” the RBA Board says in a statement.

“The Board has been closely monitoring the economy and judges that some of the increase in inflation reflects greater capacity pressures. As a result, the Board considers that inflation is likely to remain above target for some time.”

Retail responds

Australian Retail Council CEO Chris Rodwell says the decision will weaken business and consumer confidence and will slow the retail recovery. 

“Retail is a $444 billion sector which contributes almost one fifth of our gross domestic product and employs one in ten Australians – we need retail to thrive for our broader economy to thrive,” he says.   

“Retailers have spent the past three years managing rising costs and navigating aggressive global competition and ongoing uncertainty. This rate rise places additional pressure on business investment and household budgets.”

Reiterating his comments from December, Mr Rodwell says this decision underlines the need to lift productivity across the economy. 

“That means governments must move faster to reduce unnecessary red tape, cut duplication across jurisdictions, lower the compliance burden on businesses, and contain government spending,” he says.  

Small business under pressure

In similar comments, CPA Australia says the interest rate rise will hit households and small businesses hard, compounding existing cost‑of‑living pressures and stretching already tight budgets.

CPA Australia Business and Investment Lead Gavan Ord says small businesses remain under pressure from high borrowing costs, rising inflation and low consumer confidence.

“For many, there are no easy options left,” he says.

CPA Australia believes support for small businesses should focus on long‑term reform rather than short‑term relief.

“What small businesses need most is decisive government action to reduce red tape and improve the overall business environment,” says Mr Ord. “Removing unnecessary regulatory burden helps businesses focus on growing, employing people and serving customers.”

As costs continue to climb, consumers may see flow‑on effects at the checkout.

“Many small businesses will have little choice but to pass some of these costs on to customers,” says Mr Ord. “Others will need to rethink investment and growth plans to manage cash flow and financial risk.”

For those concerned about managing financial pressures, Mr Ord advises to speak with a trusted adviser.

“Accountants can help businesses plan, manage risk and navigate changing economic conditions,” he says.

CPA Australia also calls on governments to support access to professional advice.

“Incentivising small businesses to seek professional advice would strengthen resilience and improve long‑term outcomes during periods of economic uncertainty,” says Mr Ord.