RBA February 2026 decision: RBA hikes rates for the first time in more than two years

It’s official: interest rates will rise following a decision by the Reserve Bank of Australia to lift the cash rate to 3.85 per cent at its first meeting of 2026.

The decision on Tuesday February 3 was widely expected by economists and analysts, given strong labour conditions and persistently high inflation.

It’s a rare case of policy whiplash, with the RBA swinging from cuts to hikes in a matter of months. The shift marks one of the most compressed and shallow interest-rate cycles in decades.

It is the first time the RBA board has increased the cash rate since November 2023, when it rose to 4.35 per cent.

Last year, the central bank delivered three cuts as inflation pressure eased, with the cash rate holding at 3.6 per cent since August.

A statement released by the Reserve Bank revealed it was a unanimous decision and signalled that further rate rises were possible.

“The Board judged that inflation is likely to remain above target for some time and it was appropriate to increase the cash rate target,” the statement said.

“The Board will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions.”

“The RBA has opted for a more aggressive approach to re-taming inflation with a 25-basis-point lift in the cash rate to 3.85 per cent,” said KPMG economist Brendan Rynne.

KPMG had advocated for interest rates to remain on hold due to “noisy data” and “transitory cost influences” pushing up inflation. Rynne said the RBA’s decision would send a “strong message to households and businesses to temper spending in this tight supply environment”.

The increase is expected to take some of the steam out of the nation’s hot property market, which recorded a strong upswing in 2025.

Canstar data insights director Sally Tindall said the rise was a “bitter pill to swallow for borrowers across the country”, who just five months ago were eyeing further cash rate cuts.

Impact of an RBA hike in February on minimum monthly repayments

Loan size	0.25% hike	New repayment
$500,000	$75	$3,151
$600,000	$90	$3,782
$700,000	$105	$4,412
$800,000	$120	$5,042
$900,000	$135	$5,673
$1 million	$150	$6,303

Source: Canstar. Notes: based on an owner-occupier paying principal and interest with 25 years remaining in Feb 2026 at the RBA average existing customer variable rate. Calculations assume banks pass on each hike in full to existing variable customers the month after.

Instead, mortgage holders on variable loans should brace for an imminent increase in loan repayments, as banks are expected to pass on the rate rise to customers.The increase will add $90 a month to the minimum monthly repayments of a typical $600,000 mortgage with 25 years remaining, according to Tindall.

Canstar research also shows a 0.25 percentage point hike would reduce the average Australian’s maximum borrowing capacity by around $12,000.

The RBA’s decision to lift the cash rate comes after higher-than-expected inflation figures were released last week. The consumer price index was 3.8 per cent in the year to December, significantly higher than the central bank’s target band of 2 to 3 per cent.

Underlying inflation, known as the trimmed mean, had also ticked up to 3.3 per cent while unemployment fell to 4.1 per cent.

Graham Cooke, head of consumer research at Finder, said the RBA is sending a clear signal that the inflation genie isn’t back in the bottle just yet.

“Our research showed mortgage stress on average had started to subside – expect it to rise with a vengeance as monthly payments jump.

“If inflation persists, expect more of last year’s mortgage stress relief to be wiped away.”

All of the “big four” banks were predicting a cash rate increase, with some lenders raising fixed interest rates in anticipation of the move.

Several economists and analysts have already predicted the RBA will increase the cash rate again in May.

“While no one likes an interest rate rise, it won’t switch off demand, with data showing there are still buyers out there,” he said, pointing to population growth, a lack of new housing supple and a shortage of existing listings.

“We expect to still see price gains, just at a slower pace. What is more likely is that days on market will increase as buyers take longer to decide and may be more budget conscious.”

Tiller said he did not expect an influx of distressed listings, given that borrowers had already tolerated an extended period of interest rate increases.

Tindall said rising rates did not always equate to a drop in property prices.

“During the last run of rate hikes, which saw the cash rate jump by an unprecedented 4.25 percentage points, property prices defied gravity due to the imbalance in supply and demand – a factor that’s likely to keep prices moving north in this next round of hikes,” she said.

Source: Domain

RBA February 2026 decision: RBA hikes rates for the first time in more than two years

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