Minutes from the central bank's February meeting - where the board decided to lift the cash rate by to 3.85 per cent - were released on Tuesday, saying inflationary pressures represented a growing challenge.
"Inflation had picked up in the second half of 2025 and was currently too high," the minutes read.
"While the increase in underlying inflation was at odds with the central projection six months prior, it represented the crystallisation of what had been a growing risk highlighted by the board."
Fresh forecasts by the bank show trimmed mean inflation peaking at 3.7 per cent by the middle of the year, well above the target band of between two and three per cent.
The minutes said the rise in inflation throughout the second half of 2025 had been broad.
"The breadth of inflation was consistent with the staff's assessment that economy-wide capacity pressures ... had contributed to some of the recent increase," it said.
"Price volatility in categories such as electricity, travel and groceries, and some sector-specific demand and price pressures that had affected prices of new dwellings and durable goods."
The bank's board said excess demand in the economy was unlikely to be corrected if the cash rate remained on hold at 3.6 per cent.
The hike in interest rates came after three reductions throughout 2025.
"Financial conditions were currently not restrictive enough to bring inflation back to target within a reasonable period," the minutes said.
"Data received since the previous meeting had strengthened (members') concern that, without a policy response, inflation could remain persistently above target for too long."
The central bank said it would still keep an eye on whether future increases to interest rates would be necessary throughout the year.
"Developments over preceding months had added to their concerns that financial conditions may no longer be restrictive, even with the rise in market expectations for the cash rate and the consequent appreciation of the Australian dollar," it said.
While the bank's governor Michele Bullock had fronted the media after the rates call and faced two parliamentary inquiries since the hike, the release of the meeting minutes provided the full rationale behind the decision.
The board noted expectations were higher in the market for an increase in rates in Australia compared to comparable economies.
This was due to a perception Australia faced stronger inflationary pressures than others, as well as a higher target for inflation.
Also on the agenda for the rates meeting were threats to the US Federal Reserve's independence by Donald Trump.
Ms Bullock was among more than a dozen central bank governors who signed an open letter in solidarity with Federal Reserve chair Jerome Powell, who had come under attack from the US president.
"Members noted that a range of new geopolitical and institutional risks had emerged since the previous meeting, including military action, tariff developments and new threats to the independence of the US Federal Reserve," the minutes said.
"For the most part, these had prompted only modest and short-lived reactions in financial markets."
34°C