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The Reserve Bank of Australia (RBA) has increased the official cash rate to 3.85 per cent at its February 2026 meeting — a rise of 0.25 percentage points and the first rate hike in more than two years.
The move comes after inflation began rising again in the second half of 2025, prompting the RBA to tighten monetary policy to keep price growth under control.
A new cash rate of 3.85 per cent officially took effect in early February, with the next decision due in mid-March 2026.
Why did the RBA lift rates?
Put simply: inflation is still too high.
While price growth has fallen from its 2022 peak, it started climbing again in late 2025. The RBA now expects inflation could reach around 4.2 per cent in mid-2026, which is well above its preferred 2–3 per cent range.
The Bank says strong household spending, investment and a still-tight labour market are adding pressure to prices.
RBA Governor Michele Bullock said recent data showed inflation was still “too strong”, meaning interest rates were no longer at the right level to bring it back down quickly enough.
The lead-up to the February decision
Through 2025, the RBA had moved into a rate-cutting phase as inflation eased. But by late 2025, new data showed price pressures returning — particularly in services, housing and consumer demand — forcing the Bank to change course.
February 2026 therefore marked a shift back toward tightening policy to keep inflation from becoming entrenched again.
Have banks passed the rate rise on?
Historically, lenders tend to pass RBA rises onto variable mortgage rates, although timing can vary.
Early reporting already suggests higher borrowing costs are flowing through, while savers may see higher deposit returns.
If you’re on a variable rate mortgage, expect your lender to review your rate in the weeks following the RBA decision.
What do the current RBA rates mean for you?
If you have a mortgage:
A rate rise usually means higher monthly repayments, especially if you’re on a variable rate loan.
Even a small change can add up. Some modelling suggests repayments could rise by roughly $90–$100 a month depending on loan size and rate changes, though every lender and loan is different.
With mortgage stress already easing slightly in late 2025, analysts warn repayments could now start rising again.
Something you should consider with your financial advisor is reviewing your interest rate, consider refinancing, or look at offset or redraw strategies to reduce interest.
If you’re renting:
There’s usually no immediate benefit, and sometimes indirect pressure.
If landlords face higher mortgage costs, some may try to pass those costs on through rent increases, though this depends heavily on local rental markets.
If you’re a saver or retiree
Higher rates can be good news!
Savings accounts and term deposits often rise after RBA hikes, meaning better returns on cash savings for retirees.
If you’re planning to borrow
Borrowing costs for personal loans, credit cards and car loans can rise over time, though not always immediately or by the full amount of the RBA change.
What’s next?
The RBA has not ruled out further rate rises if inflation stays stubbornly high.
While it’s not welcome news for mortgage holders, the RBA says keeping inflation under control is essential for long-term cost-of-living stability.
The next key checkpoint will be the RBA’s March 2026 decision.
