RBA Raises Rates in February 2026: Cash Rate Increases to 3.85%

The Reserve Bank of Australia (RBA) raised the official cash rate by 25 basis points to 3.85 per cent at its 3 February 2026 board meeting. The decision was unanimous and marks the first rate increase since November 2023, reversing the direction after three consecutive cuts during 2025. The surprise move has significant implications for millions of Australian borrowers. In this article, we break down exactly what the RBA's decision means for different types of borrowers, why the board chose to hike, and what the outlook looks like for the rest of 2026.

The February 2026 Decision Explained

The RBA board met on 3 February 2026 and voted unanimously to increase the cash rate from 3.60 per cent to 3.85 per cent. In its post-meeting statement, the board noted that inflation picked up materially in the second half of 2025, with headline CPI at 3.6 per cent and underlying (trimmed mean) inflation at 3.4 per cent year-ended to the December quarter — both higher than the RBA had forecast. Governor Michele Bullock stated during her press conference that "the underlying pulse of inflation is too strong" and that "the economy is closer to its supply capacity than we previously thought." She highlighted that private demand had strengthened substantially more than expected, driven by household spending and business investment. The RBA also noted that the labour market remains relatively tight, with unemployment broadly stable at around 4.25 per cent — lower than anticipated. While wage growth has eased from its peak, unit labour cost growth remains elevated, adding to inflationary pressures. This is the first rate increase since November 2023 (when rates rose to 4.35 per cent). During 2025, the RBA cut rates three times — in February, May and August — bringing the cash rate down from 4.35 per cent to 3.60 per cent. The February 2026 hike reverses the most recent of those cuts.

What This Means for Home Loan Borrowers

For the roughly one-third of Australian households with a mortgage, the rate hike means higher monthly repayments. All four major banks — CBA, NAB, ANZ and Westpac — passed on the full 25 basis point increase to variable rate home loan customers, effective from mid-February 2026. Here is how the increase affects monthly repayments on a principal-and-interest variable rate loan over a 30-year term:

• $500,000 loan: approximately $75 more per month ($900 per year)
• $750,000 loan: approximately $112 more per month ($1,344 per year)
• $1,000,000 loan: approximately $150 more per month ($1,800 per year)

These figures come on top of the cumulative rate increases since the start of the tightening cycle in May 2022. A borrower with a $600,000 variable rate home loan is now paying well over $1,000 per month more than they were at the trough of the rate cycle in 2021. For those on fixed rates that are due to expire, the rate hike makes it even more critical to shop around before your fixed term ends. Lenders are still competing for refinance business, and you may be able to secure a rate below the standard variable rate by negotiating or switching lenders.

Impact on Car Loan and Personal Loan Rates

Car loan and personal loan rates are not directly tied to the cash rate in the same way that variable home loans are. These products are priced based on a combination of wholesale funding costs, competitive dynamics and risk assessment. However, a rising cash rate environment does put upward pressure on car loan pricing over time. Currently, competitive secured car loan rates start from around 5.99 per cent for borrowers with strong credit profiles and newer vehicles. The rate hike may see some lenders adjust car loan rates upward in the coming weeks, though competition in this market tends to limit the extent of increases. For those looking at unsecured personal loans, rates typically range from 7 per cent to 15 per cent depending on credit profile and loan amount. The cash rate hike signals a tightening environment, so locking in a rate sooner rather than later may be advantageous if you are planning a major purchase.

Business Lending Implications

Small business owners will feel the impact of the rate hike through higher costs on variable rate business loans, overdraft facilities and lines of credit. For businesses already managing tight margins, the additional borrowing costs add further pressure to cash flow planning. The RBA's reasoning for the hike — stronger-than-expected private demand and persistent inflation — does suggest the broader economy remains robust. Consumer spending is holding up, which is positive for business revenue. However, the higher cost of borrowing may weigh on business investment decisions, particularly for capital-intensive industries. Business owners considering equipment purchases or expansion should factor in the likelihood that rates may rise further. The instant asset write-off provisions remain in place, so there may be tax advantages to proceeding with planned capital expenditure sooner rather than waiting, particularly if a further rate hike is possible in May.

What Is the Outlook for 2026?

The outlook has shifted significantly. Three of the four major bank economics teams — CBA, NAB and Westpac — are now forecasting another 25 basis point hike in May 2026, which would take the cash rate to 4.10 per cent. CBA economist Belinda Allen has stated that unless inflation materially undershoots in the March quarter, the RBA is unlikely to pause in May. The RBA's own revised projections show trimmed mean inflation remaining elevated at around 3.7 per cent through June 2026, well above the 2.5 per cent target midpoint. GDP growth was 2.1 per cent year-ended to the September quarter, matching the economy's potential growth rate, which gives the RBA limited room to pause. The key data points to watch in the coming months include the March quarter CPI release (due late April), monthly employment figures and retail sales data. If inflation continues to run hot and the labour market stays tight, a May hike becomes increasingly likely. Conversely, a sharp deceleration in inflation or a significant weakening in employment could give the RBA reason to pause.

Recent Cash Rate History

• November 2023: Rate hike to 4.35% (last hike before Feb 2026)
• December 2023 – December 2024: Held at 4.35%
• February 2025: Cut to 4.10%
• May 2025: Cut to 3.85%
• August 2025: Cut to 3.60%
• September & November 2025: Held at 3.60%
• February 2026: Hike to 3.85% (current)

What Should Borrowers Do Now?

With rates rising again, there are practical steps every borrower should consider. First, review your current loan arrangements urgently. If you have not compared your rate against market offerings recently, you may be paying more than necessary. Many lenders reserve their best rates for new customers, so existing borrowers often end up on higher rates through inertia. Second, if you are on a variable rate, consider whether locking in a portion of your loan at a fixed rate makes sense. A split loan (part fixed, part variable) can provide some protection against further rate increases while maintaining some flexibility. Third, build a buffer. With the possibility of another rate hike in May, adding extra repayments now — even small amounts — will reduce your principal faster and cushion the impact of any further increases. Fourth, if you are considering a major purchase such as a home, car or business asset, factor in the possibility that rates may be 25 basis points higher again by mid-year. Getting pre-approval at today's rates can lock in your borrowing capacity before any further increases take effect. Finally, speak to a finance broker who can assess your individual situation and compare options across multiple lenders. In a rising rate environment, the difference between the best and worst rates on the market can be substantial, and professional guidance can save you thousands over the life of a loan.