RBA Cash Rate Increased To 3.85%

Why Did The RBA Increase The Cash Rate In February 2026?

At its February 2026 meeting, the Reserve Bank of Australia (RBA) increased the cash rate to 3.85%. The RBA said the move was necessary because inflationary pressures have strengthened again, particularly in the second half of 2025.

The RBA statement highlighted four key reasons:

Inflation is falling, but not fast enough

While inflation has come down since its 2022 peak, the RBA noted that it picked up materially in the second half of 2025.

Some of this increase is expected to be temporary. However, the Board believes a large part reflects ongoing capacity pressures, meaning demand in the economy is still running ahead of supply. As a result, inflation is expected to remain above the RBA’s target range for some time.

Stronger demand is adding pressure

The RBA highlighted a stronger-than-expected lift in private demand, driven by household spending and business investment.

Housing market activity and prices are also continuing to rise. At the same time, financial conditions eased throughout 2025, raising concerns that interest rates may no longer be restrictive enough to slow demand.

The Bank also noted that credit remains readily available, and the full impact of earlier rate cuts has yet to flow through the economy.

Labour market conditions remain tight

Labour market conditions remain a key concern for the RBA.

Unemployment has been slightly lower than expected, and measures of labour underutilisation remain low. While growth in the Wage Price Index has eased from its peak, broader wage growth remains strong and unit labour costs are still rising at a high rate.

These factors are adding to inflationary pressure.

Uncertainty Remains

The RBA acknowledged ongoing uncertainty in both the domestic and global economic outlook.

Domestically, stronger demand combined with limited supply capacity could further increase inflation. Globally, uncertainty remains elevated, but so far there has been little negative impact on the Australian economy, with growth among major trading partners surprising to the upside.

Our Experts Take On The Board's Decision

Here is what our experts say about the cash rate decision and what it means for borrowers.

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 the prior weeks and now the shift will be to look at whether this is the start 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.

Jonathan Preston, Senior Mortgage Broker

So what does it mean for homeowners?

For borrowers on a variable home loan, this may result in an increase to your interest rate and repayments. Lenders generally take a few days to pass these changes on, so you may not see an immediate adjustment. But, each lender responds differently, both in terms of timing and how much of the increase is passed on.

How The RBA Cash Rate Affects Interest Rates

Lenders add a margin to the official cash rate to determine the variable interest rate they offer to customers.

When the RBA raises the cash rate, lenders often increase their variable interest rates. This means your mortgage repayments go up.

When the RBA cuts the cash rate, lenders may lower interest rates. So, your repayments could go down. However, note that not all lenders pass on the full change.

If the cash rate is unchanged, your repayments usually stay the same. However, lenders can still change rates for other reasons.

Use our rate change calculator to find out what your repayments should look like whenever the cash rate changes.

Upcoming RBA Monetary Policy Board Meeting Calendar 2026

Source: rba.gov.au