RBA Kicks Off 2026 With a Rate Hike - And Economists Warn Another Could Be Close Behind

Feb 6

2 min read

The Reserve Bank of Australia has started the year with a decisive move, lifting the cash rate by 0.25% to 3.85% at its February meeting. The increase was widely expected, but what’s getting even more attention now is what may come next. Several major banks and economic forecasters, including CBA, are signalling that another rate hike is firmly on the table for May.

So why is the RBA tightening again, and why do economists think they’re not done yet?

Inflation Picked Up Again in Late 2025

The RBA’s February statement made it clear: inflation “picked up materially” in the second half of 2025, and the Board expects it to remain above target for some time.

Even though inflation has eased from its 2022 highs, the recent rebound is a concern - especially in services, where price pressures remain sticky.

Demand Is Still Running Hot

Despite higher mortgage repayments and cost‑of‑living pressures, Australians are still spending strongly. The RBA noted that demand is running hotter than the economy can comfortably handle, and financial conditions aren’t as tight as previously thought.

In simple terms: households and businesses are still pushing the economy harder than expected, which keeps inflation elevated.

Labour Market Strength Is Adding Pressure

Unemployment remains low and wage growth continues to rise. While this is good news for workers, it also fuels inflation, particularly in service‑based sectors where labour is a major cost driver.

The RBA has repeatedly highlighted that wage growth is outpacing productivity, which makes inflation harder to tame.

Housing Momentum Hasn’t Slowed

Property markets across the country remain resilient. Strong demand, limited supply and population growth are keeping prices elevated.

A buoyant housing market signals confidence and spending capacity - not exactly what the RBA wants when trying to cool inflation.

Why Economists Expect Another Hike in May

CBA economists now forecast a second 0.25% increase in May, which would take the cash rate to around 4.10%.

Their reasoning aligns with the RBA’s own updated projections:

Inflation is expected to stay above 3% throughout 2026.
Revised forecasts show higher‑than‑previously‑expected CPI outcomes.
The economy is proving more resilient than anticipated.

UBS and other analysts have also revised their expectations upward, citing persistent inflation and the RBA’s more hawkish tone.

What This Means for Borrowers

The February hike alone adds pressure to household budgets. For example, a 0.25% increase typically adds around $90 per month to repayments on a $600,000 loan.

If another hike arrives in May, borrowers could see:

Higher variable rates
Reduced borrowing power
More cautious lending conditions
Increased focus on buffers and serviceability

This is a good time for homeowners to:

Review their current rate
Compare lenders
Consider whether restructuring or partial fixing makes sense
Revisit their budget and cash‑flow planning

Looking Ahead

The RBA has made it clear they’re prepared to act again if inflation doesn’t track lower. With demand still strong and price pressures lingering, the door to another hike is wide open.

For borrowers, buyers and investors, staying proactive is key. Rate movements can shift quickly and 2026 is shaping up to be another year where the RBA keeps everyone on their toes.