RBA lifts rate after first board meeting of 2026
The RBA increased its official cash rate to 3.85% today, as expected, amid sustained higher inflation in Australia.
The 0.25% hike was the first time that the RBA had applied monetary policy brakes in just over two years.
Announcing the news, the RBA acknowledged in its statement that inflation has been rising for too long. And action needed to be taken by the board.
‘A wide range of data over recent months have confirmed that inflationary pressures picked up materially in the second half of 2025,’ said the RBA.
‘While part of the pick-up in inflation is assessed to reflect temporary factors, it is evident that private demand is growing more quickly than expected … and labour market conditions are a little tight.
‘The Board judged that inflation is likely to remain above target for some time and it was appropriate to increase the cash rate target,’ said Australia’s central bank today.
What we do know is that annual CPI inflation rose to 3.8% in December 2025, up from 3.4% in November. Underlying inflation (which strips out volatile items) also edged higher, with the trimmed mean rising to 3.3% from 3.2% the month before.
As a result, inflation sits above the RBA’s preferred 2–3% target range.
Today’s decision was in line with market expectations, with some commentators arguing it’s better to hike now rather than hike more later.
Though some economists also argued that recent global instability – Greenland, Venezuela and ongoing tariff tensions – could have prompted the RBA to hold rates steady.
Also, it’s worth noting that if you removed international holiday travel – the major contributor from December’s figures – inflation would have risen just 0.02%.
However, the banks and lenders sensed the mood before today’s announcement. Commonwealth Bank, for example, increased rates on its fixed-rate home loans by up to 0.7%.
In fact, data from rate tracking site Canstar reveal that 34 lenders have hiked at least one fixed-rate offering since the last RBA monetary policy announcement on December 10.
ABS data shows that roughly one in three Australians have home loans and the vast majority of them are on variable rates.
So, after 2025 which saw mortgage borrowers enjoy three rate cuts by August, inflation worries have reversed that welcome trend. Repayment costs are now set to rise again whether you’re on a fixed or variable rate.
The RBA next meets on 16–17 March, with an announcement on St Patrick’s Day.
If you would like to review your home loan arrangements, contact Mortgage Broker Group.
We can assist with tips on how to uncover lower rates, boost your savings, consolidate other debts, and take the pressure off increases in household prices.
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