The Reserve Bank of Australia (RBA) has started 2026 with a policy shift, increasing the official cash rate by 25 basis points to 3.85% at its first board meeting of the year.

The decision reflects growing concern that inflation may be proving more persistent than previously expected. You can read the RBA’s full statement here:
https://www.rba.gov.au/media-releases/2026/mr-26-03.html

Why did the RBA raise rates?

Recent data suggests that underlying inflation pressures remain elevated. According to the Australian Bureau of Statistics, annual trimmed mean inflation rose to 3.3% in December 2025, up from 3.2% in November. While inflation has eased from earlier peaks, this uptick has reinforced concerns that progress may be uneven.

Minutes from the RBA’s December 2025 meeting showed the board was increasingly focused on the risk of inflation becoming entrenched. In particular, they highlighted:

• Ongoing strength in the labour market

• Rising unit labour costs

• Excess demand in parts of the economy

Against this backdrop, the board appears to have judged that a modest tightening was necessary to reinforce the downward path of inflation and help bring demand back into balance with supply.

What does this mean for borrowers?

For households and businesses, this move may translate into:

• Higher variable loan repayments

• Potential flow-on increases to some fixed and discounted rates

• A renewed focus on cash flow management and borrowing strategies

While one rate rise alone may not significantly alter long-term plans, it does serve as a reminder that interest rate risk is still a key consideration in 2026.

Now is a good time to review your options

If today’s increase has you thinking about repayments, refinancing, or adjusting your financial plans, it may be worth reviewing your current loan structure. Small changes—such as negotiating rates, restructuring debt, or reviewing fixed versus variable options—can make a meaningful difference over time.

I’m here to help you understand what this change could mean for you and to explore options that align with your goals.

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