Australian mortgage-holders have dealt an early blow in 2026, with the Reserve Bank lifting the official cash rate to 3.85% on Tuesday in response to persistent inflation pressures.
Key Takeaways
- The RBA raised the cash rate by 25 basis points to 3.85%.
- The RBA had previously cut rates in February, May and August, responding to easing inflation and concerns about growth.
- Tuesday’s decision marks the RBA’s first interest rate hike since November 2023.
- The Reserve Bank said themove follows a material pick-up in inflation during the second half of 2025, with broad-based price rises seen across services, retail goods, and housing.
- It now expects headline inflation to reach 4.2% by mid-2026.
- The RBA flagged that private demand is growing faster than expected and financial conditions have eased, prompting a reassessment of the policy stance.
Big Number
$90: The estimated monthly increase in repayments on a $600,000 mortgage following today’s rate hike, according to Canstar.
Crucial Quote
“While part of the pick-up in inflation is assessed to reflect temporary factors, it is evident that private demand is growing more quickly than expected,” the RBA board said in a statement.
“Capacity pressures are greater than previously assessed and labour market conditions are a little tight… The Board judged that inflation is likely to remain above target for some time and it was appropriate to increase the cash rate target.
Contra
Ben Thompson Employment Hero Founder and Forbes cover star Ben Thompson said the rate rise didn’t come as a shock.
“The increase isn’t a surprise given inflation has come in above expectations and unemployment has fallen to 4.1%,” Thomspon said. “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.”
Wee Khoon Chong, APAC Macro Strategist at BNY, described the RBA’s press release as “hawkish,” highlighting the bank’s assessment that private demand is growing faster than expected, capacity pressures are building, and labour market conditions remain tight.
“The RBA’s view that ‘inflation is likely to remain above target for some time’ is a clear signal that further policy tightening may be expected,” Chong told Forbes Australia. “The market is currently pricing in one more rate hike by the end of the year, which seems on the conservative side if inflation and the labour market continue to surprise to the upside.”
Chong said BNY expects the RBA to hike by a total of 50 basis points in 2026, exceeding market expectations, and noted the strengthening Australian dollar could act as another tightening channel.
“With no sign of easing labour market tightness, the RBA may well continue its tightening cycle against the anticipated monetary easing in the US,” he said. “Risks are to the upside if inflation persists.”
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