RBA hikes cash rate as inflation refuses to behave

The board of the Reserve Bank of Australia (RBA) has raised the official cash rate to 3.85% at its February 2026 meeting, but it remains to be seen whether this is the start of a new cycle of rate pain for home loan borrowers, or merely a one-off.

This 25 basis point hike marks the first movement of the cash rate since the RBA cut it to 3.60% in August 2025, and the first time the cash rate has moved upwards since the end of 2023.

This decision was widely anticipated, with economists from Australia’s big four banks all in agreement that a rate rise was on the cards, following the release of stronger than expected Consumer Price Index (CPI) from the Australian Bureau of Statistics (ABS) in January.

At the time of writing, Westpac, CommBank and ANZ all predict that the RBA will likely keep the cash rate on hold for the rest of 2026, with NAB still forecasting a second hike for May 2026.

Home loan borrowers to feel the pressure

While today’s hike is intended to help bring down stubborn inflation, it puts renewed pressure on home loan borrowers.

Canstar’s research insights director, Sally Tindall, described the return to hikes as a “stark reminder” that borrowers and renters are often asked to do much of the heavy lifting when it comes to reining inflation in.

“For households who needed every opportunity to drop their monthly repayments last year and continue to juggle tight budgets, a return to rate hikes could put them between a rock and a hard place.”

Tindall cautions that if you do have a mortgage, now is the time to get prepared. “Understand what your monthly repayments will look like with this latest hike. If we see not one, but two hikes in quick succession, make sure you can clear this figure.”

“Regardless of what your home loan buffer looks like, now’s an opportune time to sense check your variable rate before the banks pass on the latest rate hike to customers.”

“Canstar data shows there are currently over 40 lenders offering at least one variable rate under 5.25 per cent, however, this latest hike could see the goal posts shift this to the mid-5’s.”

What this means for borrowers

When the RBA hikes rates, banks and lenders tend to raise their own home loan variable rates in fairly short order.

According to Canstar’s calculations, an owner-occupier with a $600,000 mortgage and 25 years remaining would see their minimum monthly repayments rise by $90, assuming banks pass it on to their variable customers.

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Source: canstar.com.au. Notes: based on an owner-occupier paying principal and interest with 25 years remaining in Feb 2026 at the RBA average existing customer variable rate. Calculations assume banks pass on each hike in full to existing variable customers the month after.

However, it seems that many borrowers are ahead on their repayments, cushioning them somewhat against a potential rate rise.

Data from NAB shows that 80% of its variable rate borrowers kept their monthly repayments the same after each of the three rate hikes in 2025, which saw them pay extra into their mortgage.

CBA data also showed that the vast majority of its variable borrowers kept their repayments the same after each rate hike.

This latest rate hike is good news for savers, with interest rates on some savings accounts and term deposits already starting to climb.

Looking ahead

Markets are now analysing the RBA’s statement for clues of further moves in 2026. While some economists predict additional hikes if inflation doesn’t moderate, others believe this may be the start of a longer holding pattern. Either way, borrowers and savers alike will be watching closely for the Bank’s next update.