The Reserve Bank of Australia raised the official cash rate by 25 basis points to 3.85% on Tuesday, the first rate-hike in over two years, as inflation and domestic demand proved stronger than expected. Markets had largely factored in the move, with futures pricing signalling a high probability ahead of the announcement.
According to the Australian Bureau of Statistics, consumer price inflation was 3.8% in December 2025, above the RBA’s target band of 2–3%. While unemployment fell to around 4.1%, underscoring tight labour market conditions that can sustain inflation pressures.
In its post-meeting statement, the RBA noted that private demand was rising faster than expected, capacity pressures were greater than previously assessed, and labour market conditions remained tight, leading the Board to judge that inflation would remain above target for some time without tighter policy.
For Australians, this means higher borrowing costs are likely to flow through to mortgage repayments, with some estimates suggesting an increase of roughly $80–$90 per month on a typical $600,000 loan if lenders pass on the hike, while savers may benefit from slightly better returns on deposits.
