On 3 February 2026, the RBA increased the cash rate by 25 basis points to 3.85%, marking the first rate hike since 2023. The RBA’s decision was driven by a material pick‑up in inflation during the second half of 2025, with private demand, housing activity, and labour market tightness all contributing to upward pressure on prices.
For millions of Australians, this decision lands at a time when household budgets are already stretched. Treasurer Jim Chalmers acknowledged the reality bluntly: the rise will be “difficult news for millions of Australians with a mortgage.”
The Real Impact on Day‑to‑Day Living
- Home Loan Repayments
A 0.25% increase may sound small, but for a typical $600,000 mortgage, repayments rise by around $90 per month. For families already juggling rising grocery bills, insurance premiums, utilities, and fuel costs, this is yet another squeeze.
- Renters Aren’t Spared
Higher mortgage costs for landlords often flow directly into rental increases. With vacancy rates at historic lows, renters have little bargaining power.
- Everyday Essentials Continue to Climb
The RBA noted that inflation has picked up across services, retail goods, and housing, signalling that cost pressures are broad‑based — not isolated to one sector. This means Australians can expect continued pressure on:
- Groceries
- Health insurance
- Energy bills
- Transport
- Childcare and education
- Wages Aren’t Keeping Pace
While the labour market remains “a little tight,” wage growth has not matched the pace of inflation, leaving households with shrinking real purchasing power.
Why the RBA Increased Rates
The RBA’s statement makes the reasoning clear:
- Inflation picked up materially in late 2025, despite earlier declines.
- Private demand is stronger than expected, driven by household spending and investment.
- Housing activity and prices continue to rise, adding to inflationary pressure.
- Labour market conditions remain tight, contributing to higher unit labour costs.
The Board concluded that inflation is “likely to remain above target for some time”, making a rate increase necessary to bring it back toward the 2–3% target band.
How Australia Compares Globally
Australia’s 3.85% cash rate places it in the mid‑range among advanced economies:
| Country | Policy Rate (Approx.) | Cost‑of‑Living Pressure |
| United States | Higher than Australia | High inflation but easing |
| United Kingdom | Higher than Australia | Severe cost‑of‑living crisis |
| Canada | Similar to Australia | Elevated housing and food costs |
| New Zealand | Higher than Australia | Aggressive tightening cycle |
| Australia | 3.85% | Persistent inflation, strong private demand |
While Australia’s rate is not the highest among first‑world economies, our cost‑of‑living pressures remain among the most acute, particularly in housing and essential services. The RBA itself noted that financial conditions eased through 2025, meaning households may not yet have felt the full impact of earlier rate cuts — another reason the Board acted now.
What This Means for Your Financial Future
This rate rise is not just about today — it’s about the next 12–24 months.
- Borrowing will become more expensive.
- Refinancing opportunities may narrow.
- Lenders will tighten assessment criteria.
- Future rate movements remain uncertain.
In this environment, proactive planning is essential.
Now Is the Time to review your current and future borrowing needs.
At PWS Advisory Group, our mission has always been clear: to improve the personal wellbeing of our clients and the people around them.
With the financial landscape shifting again, now is the perfect moment to:
- Review your current loans
- Assess future borrowing needs
- Explore refinancing or restructuring options
- Stress‑test your financial position
- Plan ahead for further economic uncertainty
If you’d like to understand how this rate rise affects you — or want to get ahead of what may come next — book a time with me directly via Calendly or give me a call on 0400 011 828. Taking action now can make a real difference to your financial wellbeing.
References & Source Links
- RBA Monetary Policy Decision – 3 February 2026 https://www.rba.gov.au/media-releases/2026/mr-26-03.html (rba.gov.au in Bing)
- ABC News – RBA lifts interest rates by 0.25pc as inflation rises https://www.abc.net.au/news/reserve-bank-lifts-interest-rates-february-2026/106298696 (abc.net.au in Bing)
- Forbes Australia – RBA Rates Decision https://www.forbes.com.au/news/investing/rba-rates-decision-first-hike-2026/ (forbes.com.au in Bing)
