Reserve Bank makes first rate call for 2026

Following December’s hold, some economists believe that the RBA will increase the cash rate; find out here if it has decided to hike, hold, or cut interest rates.

At its December 2025 meeting, the board of the Reserve Bank of Australia decided to hold the cash rate at 3.60 per cent, following a hold in its November call.

Today (Tuesday, 3 February), the RBA board decided to increase the cash rate by 0.25 per cent, bringing it to 3.85 per cent – the first rate rise in two years (since November 2023).

Inflation has picked up materially in the second half of 2025 after falling substantially since its peak in 2022, the Reserve Bank of Australia said.

In a statement, the board said: “The board has been closely monitoring the economy and judges that some of the increase in inflation reflects greater capacity pressures. As a result, the board considers that inflation is likely to remain above target for some time.

“Capacity pressures reflect, in part, the greater momentum in demand seen in recent months. Growth in private demand has strengthened substantially more than expected, driven by both household spending and investment. Activity and prices in the housing market are also continuing to pick up. Financial conditions eased over 2025, and it is uncertain whether they remain restrictive. Credit is readily available to both households and businesses, and the effects of earlier interest rate reductions are yet to flow through fully to aggregate demand, prices and wages. More recently, the exchange rate, money market interest rates and government bond yields have risen following a rise in market expectations for the cash rate.

“Various indicators suggest that labour market conditions remain a little tight and that they have stabilised in recent months, in line with the pick-up in momentum in economic activity. The unemployment rate has been a little lower than expected, and measures of labour underutilisation remain at low rates. Growth in the Wage Price Index has eased from its peak, but broader measures of wages growth continue to be strong, and growth in unit labour costs remains high.”

Greens Senator Nick McKim called the interest rate hike “pure profit” for the big banks, saying that “Australians should not be paying more every month because the government keeps siding with banks and big investors”.

“As a result of today’s rate rise, more of people’s pay packets will now flow straight into bank profits and landlord pockets,” McKim said.

Employment Hero chief executive and co-founder Ben Thompson said: “The rate increase isn’t a surprise given inflation has come in above expectations and unemployment has fallen to 4.1 per cent. The challenge is that higher rates will add pressure for households and small businesses at the same time as the labour market is already starting to cool, per Employment Hero data.”

“The latest Employment Hero jobs data shows hiring is slowing and employers are cutting hours. That’s most pronounced amongst younger Australians and in casual, shift-based roles – jobs that depend on rostered hours, weekend shifts and seasonal demand. While the rise is clearly intended to curb inflation, we’d expect that cooling trend to become more evident in our data as business owners navigate a tougher environment.”