RBA lifts rates as inflation worries resurface

3rd Feb 2026 07:10

(Sharecast News) - Australia's central bank lifted interest rates by a quarter point on Tuesday in response to inflation running above its 2 -3% target level and a tight labour market.

In a unanimous decision, the Reserve Bank of Australia's policy board increased the cash rate rise to 3.85%, from 3.6% at the end of its two-day meeting, citing inflationary pressures that picked up materially in the second half of 2025.

"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, capacity pressures are greater than previously assessed and labour market conditions are a little tight," it added.

It warned that "inflation is likely to remain above target for some time".

"I know this is not the news that Australians with mortgages want to hear, but it is the right thing for the economy," said RBA governor, Michele Bullock after the decision.

"Based on the data we've seen and the conditions here and around the world, the board now thinks it will take longer for inflation to return to target, and this is not an acceptable outcome."

The widely expected cut ended the shortest rate-cutting cycle in the bank's modern history, after three reductions last year. Investors are now betting on the 75% of another 25-basis point rise in May.

To compound the bad news for mortgage holders and consumers generally, the RBA's economic outlook, also released on Tuesday, assumed headline inflation would now reach 4.2% by the middle of the year, a level not seen since 2023.

Reporting by Frank Prenesti for Sharecast.com