RBA Raises Interest Rates to 3.85% - What It Means for You

The Reserve Bank of Australia has raised the cash rate by 0.25% to 3.85% at its February 2026 meeting. This is the first rate increase since November 2023 and marks a significant shift after three rate cuts in 2025. If you have a variable rate mortgage, your repayments are about to go up.

The Decision

RBA Governor Michele Bullock announced the 25 basis point increase following the Board's first meeting of 2026. The decision comes after:

• Inflation remaining stubbornly high at 3.8% (annual CPI)
• Trimmed-mean inflation at 3.3% - still above the RBA's 2-3% target
• Unemployment dropping unexpectedly to 4.1% in December
• Strong employment growth of 65,200 jobs in December

This makes Australia the first major central bank to end its rate-cutting cycle with a hike following the COVID pandemic - a move being closely watched globally.

How Much Will Your Repayments Increase?

If your lender passes on the full 0.25% increase, here's what you can expect:

What the Experts Are Saying

Commonwealth Bank: "One and Done"

CBA's head of Australian economics Belinda Allen believes this will be the only rate hike in 2026: "We think the RBA will be one and done for interest rate hikes in 2026. Inflation is too high, the economy is growing a little bit above its potential, but it won't take much to bring the economy and inflation back into balance."

NAB: Another Hike in May

NAB remains the only big four bank predicting a second rate rise, forecasting another 0.25% increase in May that would take the cash rate to 4.10%.

Market Pricing

Financial markets are currently pricing in a second 25 basis point hike by September 2026, suggesting traders aren't convinced this is "one and done".

What Should You Do Now?

1. Review Your Budget

Factor in the higher repayments immediately. Even if your lender takes a week or two to pass on the increase, it's coming. Adjust your budget now.

2. Check Your Rate

Are you paying more than you should? Many borrowers are on rates well above what's available in the market. This is a good time to compare.

3. Consider Fixing

If you're worried about further rate rises, fixing a portion of your loan could provide certainty. However, fixed rates have already risen in anticipation of today's decision, so weigh up carefully.

4. Use Your Offset

If you have an offset account, now's the time to maximise it. Every dollar in offset reduces the interest you pay on your variable portion.

5. Get a Health Check

A mortgage broker can review your current loan and tell you if you could be getting a better deal. With rates rising, this becomes even more important.

What About Fixed Rates?

Fixed rates had already risen over the past month as lenders anticipated this decision. Current fixed rates range from approximately:

• 1-year fixed: 5.89% - 6.49%
• 2-year fixed: 5.69% - 6.29%
• 3-year fixed: 5.59% - 6.19%

Whether fixing makes sense depends on your circumstances and view on future rates. Talk to us for personalised advice.

The Bigger Picture

Today's rate hike is a reminder that rates can go both ways. After enjoying three cuts in 2025, homeowners are now facing the reality that inflation hasn't been fully tamed.

The good news is that employment remains strong and the economy is performing well. If inflation does come back under control, we may see rates stabilise or even fall later in the year.

For now, the best approach is to ensure you're on the most competitive rate possible, maintain a buffer in your budget, and stay informed about future RBA decisions.