RBA Delivers First Rate Hike Since 2023

The Reserve Bank of Australia delivered its first interest rate increase since 2023, lifting the cash rate by 25 basis points to 3.85% at its opening policy meeting of 2026. The decision, which was unanimous and widely expected by markets, effectively reverses part of last year’s easing cycle and signals a renewed focus on inflation risks.

Inflation Risks Back in Focus

In its statement, the RBA noted a rise in cost pressures during the second half of 2025. Services inflation has remained sticky, underpinned by a tight labor market and firm wage growth. Businesses continue to report difficulty filling vacancies, allowing higher labor costs to feed into pricing. While goods inflation has eased, policymakers stressed that services prices are now the main source of concern.

The central bank acknowledged that inflation is likely to stay above its 2–3% target band for longer than previously anticipated. Stronger growth has helped, as domestic demand has stayed firm and households have continued spending more than expected, even with borrowing costs higher.

Data-Driven Path Ahead

The RBA framed the rate hike as a response to changing conditions rather than the start of a sustained tightening cycle. Officials stressed that future decisions will remain data-dependent, with careful attention paid to inflation trends, labor market conditions, and household spending.

Key points from the decision include:

Inflation pressures have intensified, particularly in services.
Wage growth and labor market tightness remain elevated.
Domestic demand has been more resilient than expected.

For financial markets, the move heightens sensitivity to upcoming inflation and employment data. The Australian dollar could draw support if price pressures persist, while rate expectations are likely to remain volatile as investors reassess the likelihood of further tightening.

Overall, the RBA’s message was balanced but firm. Progress on inflation has been made, but policymakers made clear that maintaining price stability now takes priority, even as they seek to preserve the broader economic expansion.

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