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The Reserve Bank of Australia has announced that the official cash rate will be hiked by 0.25 percentage points, bringing the interest rate to 3.85 per cent.
This marks the first time the Reserve Bank of Australia (RBA) has moved the cash rate since it reduced it to 3.60 per cent on 13 August 2025.
The decision to hike rates was unanimous.
In a statement, the RBA board said, "A wide range of data over recent months have confirmed that inflationary pressures picked up materially in the second half of 2025.
"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, capacity pressures are greater than previously assessed 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."
The February hike has been driven by a combination of a stickier-than-expected inflation rate and a labour market that has remained tighter than many predicted.
The consumer price index (CPI) rose 3.8 per cent in the 12 months to December 2025, up from 3.4 per cent in the year to November, according to the Australian Bureau of Statistics. The trimmed mean rose to 3.3 per cent in the 12 months to December, from 3.2 per cent in the year to November.
For the December quarter, inflation printed at 3.6 per cent – the highest level in six quarters.
The RBA’s inflation target range is 2–3 per cent.
At the same time, unemployment edged down month on month from 4.3 to 4.2 per cent.
In January, RBA deputy governor warned that the chances of near-term easing remain “very low”.
“Inflation above 3 per cent, let’s be clear, is too high,” Hauser said.
“I think we all remember the pain and the difficulty, many of us are still working that through, of that persistent high period of inflation over the last few years.
“It’s our job to ensure that doesn't happen again.”
An anticipated decision
The hike was widely anticipated by the major banks, with all four forecasting a 0.25 basis point move, as reported on Broker Daily's sister publication, The Adviser.
Australia and New Zealand Banking Group (ANZ) and Westpac had been expecting rates to hold, until the December quarter figures, released 28 January, came out hotter than anticipated.
Commonwealth Bank of Australia (CBA) and National Australia Bank (NAB) have both predicted rate hikes since December 2025.
Ahead of the decision, real estate marketplace Domain’s chief of research and economics, Dr Nicola Powell said that a hike was “very likely”.
“Inflation just isn’t easing as quickly as many had hoped,” he said.
“Higher rents, insurance, and energy costs are still feeding through, and the strength of the labour market means the RBA doesn’t have the breathing room it needs.”
Many brokers were also expecting a rate hike.
Jonathan Preston, senior broker at Home Loan Experts, "As expected, the RBA wanted to be on the front foot and get started on rate hikes right away, to ensure things don't get out of hand.
"We have noticed some caution in the markets in prior weeks and now the shift will be toward looking at whether this is the beginning of a new upward trend in rates, or if this will be a one-and-done hike for this point in time. Over the coming weeks, I hope we will gain further certainty around what the future is going to look like."
Melanie Smith, broker and Aussie franchisee, said she has already been working out servicing as if rates were going up.
“I also think it highlights the importance of good advice from trusted experts like brokers. For brokers, it highlights the need to spend more time with clients, getting to know them and not just their numbers.
“I think brokers can provide clarity and reassurance more than ever. We can help clients understand their overall position and their options.”
Impact on the market
Graeme Salt, mortgage broker and director of Origin Finance, tempered interest rate concerns by noting that a rate rise would have a modest impact on most borrowers.
“Let’s get this in perspective,” Salt said.
“If you have a loan of $500,000 now at 5.25 per cent, a rate rise to 5.5 per cent, will increase your monthly repayments from $2,761 to $2,838.
“And, if you have extra money stored in redraw or an offset account, there will be a smaller increase in interest payments.”
Salt also said a rate rise could also have some positive flow-on effects.
“While repayments may go up with rate rises, they may also put a brake on house prices,” he said.
“Higher rates will thin out the competition when it comes to purchase – many would-be buyers will become more cautious when it comes to buying a place.”
However, Finni brokers Eva Loisance and Costa Arvanitopoulos argued that riding interest rates would do little to slow Australia’s property market, as persistent housing shortages and strong investor demand would keep prices elevated.
“Rates aren’t just going to do anything, because in the end, they’re not building enough homes for the people that want to purchase. So ultimately that comes down to, as we all know, supply and demand. If the supply is not there, the demand is going to increase regardless of what the economics are outside of that,” Arvanitopoulos said.
“This is always going to be one of the factors that keeps heat in the market and you can’t change it overnight,” Loisance added.
Powell from Domain argued that the hike could have “real consequences” on the housing market.
“What's important here is how quickly expectations have changed. Only a few months ago, the conversation was about more rate cuts. Now, the reality is that interest rates may stay elevated for longer, and that has real consequences on the housing market.
“Supply constraints will continue to underpin prices, so we’re not talking about a sharp correction. But higher borrowing costs do slow things down. We expect price growth to moderate through 2026, particularly in markets like Sydney and Melbourne where buyers are more sensitive to interest rate changes.
“For borrowers, this means less borrowing power and a more challenging lending environment. That tends to cool buyer urgency, encourage more cautious bidding, and bring a more measured feel to auctions and private treaty negotiations.”
The Mortgage & Finance Association of Australia (MFAA) CEO Anja Pannek said that the hike would hit first home buyers particularly hard.
“The higher rate environment also makes it tougher for first home buyers looking to take advantage of the Australian Government 5% Deposit Scheme, as higher rates can reduce borrowing capacity for those trying to enter the market," she said.
Ms Pannek said the RBA Board had made it clear that inflation is likely to remain above target for some time, driven by substantial growth in private demand, including both household spending and investment, and escalating house prices.
“Despite the hike, it does not mean borrowers are out of options,” Ms Pannek said.
“The smartest step borrowers can take is to speak to their mortgage broker. Brokers can explore a range of options and that includes options to improve serviceability, securing a sharper rate with an existing lender, refinancing to a different lender or consolidating debt to improve cash flow.”
[Related: First home buyers power spike in mortgage activity]