At its first monetary policy meeting of 2026, the Reserve Bank of Australia increased the cash rate by 0.25 percentage points to 3.85 per cent.
The RBA’s decision to lift the cash rate had been widely anticipated, with major banks and economists forecasting a rise following the release of recent Consumer Price Index (CPI) and labour market data.
According to the latest figures from the Australian Bureau of Statistics (ABS), CPI increased by 3.8 per cent over the 12 months to December, up from 3.4 per cent in November, with housing and electricity costs the primary contributors to the rise.
The move represents the RBA’s first interest rate rise in two years and is expected to have implications for approximately 3.3 to 3.8 million mortgage holders according to ABS 2021 census data, as higher borrowing costs begin to flow through to households.
According to the RBA, inflation has fallen substantially since its peak in 2022, however it picked up in the second half of 2025.
As a result,the RBA board considers that inflation is likely to remain above target for some time.
