The Reserve Bank board met on 3 February 2026 and voted unanimously to increase the cash rate from 3.60 per cent to 3.85 per cent. The decision was the first rate increase since November 2023, reversing the direction after three consecutive cuts during 2025. Headline CPI had run at 3.6 per cent and underlying 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 more than expected, driven by household spending and business investment. The board cited a still-tight labour market with unemployment around 4.25 per cent.
What it cost a typical mortgage
All four major banks passed on the full 25 basis-point increase to variable home-loan customers within a fortnight. Indicative monthly add-ons on a 30-year P&I loan: $75 on a $500k loan, $112 on $750k, $150 on $1m. Those numbers look small in hindsight: the May 2026 cash rate is now 4.35 per cent, and cumulative 2026 hikes have added several hundred dollars a month on top of the February move.
Why the board moved
- Inflation reaccelerated in the back half of 2025: trimmed-mean above 3 per cent and trending up.
- Private demand surprised to the upside, especially household spending and business investment.
- The labour market stayed tighter than the RBA expected; unit labour cost growth was elevated.
- Wholesale funding markets were already pricing some risk of a hike before the meeting.
Where the cycle went next
The February move turned out to be the start of a hiking cycle rather than a one-off correction. The board hiked again at the March meeting (to 4.10 per cent), and again in May (to 4.35 per cent). The May decision followed a Middle East fuel-price impulse that the RBA flagged as having "second-round effects on prices for goods and services more broadly". Bond market pricing now implies a further hike before year-end.
For borrowers reading this in the archive, the practical read-through has not changed: the right response to a rate-rise cycle is to know your own number, model the next 0.25 per cent in advance, and decide what you will do if it lands. The articles at the top of /news cover what to do specifically at 4.35 per cent, including refinance break-even, fixed-vs-variable maths, and hardship arrangements before missing a payment.