RBA Hikes Rates, Ending Post-COVID Cutting Cycle

SYDNEY (Azat TV) – The Reserve Bank of Australia (RBA) has delivered a significant policy reversal, hiking its official cash rate by 25 basis points to 3.85 percent on February 3, 2026. This marks the first increase since November 2023 and positions the RBA as the first major central bank globally to conclude its post-COVID cutting cycle with an increase, signaling renewed concerns over persistent inflation.

The move comes after a period where economists had largely anticipated further rate cuts, highlighting a sudden and unexpected uptick in inflation data that prompted the RBA’s board to act decisively. Governor Michele Bullock confirmed the unanimous decision, emphasizing the board’s discomfort with current inflation levels despite acknowledging the hardship for mortgage holders.

RBA Signals Tougher Stance on Inflation

The RBA’s decision to raise interest rates follows a ‘surprise uptick’ in inflation, which has defied earlier expectations of a continued downward trend. The all-important trimmed mean inflation rate for the three months to December came in higher than expected at 0.9 percent, pushing the annual rate to 3.3 percent from 3.2 percent. Headline inflation also rose to 3.8 percent for the 12 months to December, up from 3.4 percent in November.

Governor Michele Bullock, addressing the media after the announcement, stated that the board is ‘uncomfortable’ with where inflation is currently positioned. She elaborated on the RBA’s revised projections, which now see inflation remaining above the 2 to 3 percent target band until early 2027, and only reaching the middle of that band by June 2028. Notably, these forecasts already incorporate the assumption of at least one more rate hike, reflecting the RBA’s serious assessment of the inflationary pressures.

Bullock defended the RBA’s previous rate cuts in 2025, asserting they were ‘the right thing’ at the time given market expectations and economic conditions. However, she stressed that ‘circumstances change, we change,’ justifying the current rate hike as a necessary ‘adjustment’ to prevent prolonged economic pain from elevated inflation. She also confirmed that the board did not consider a 50 basis point hike and plans to proceed ‘cautiously’ without a predetermined path for future rates.

Economic Fallout and Political Repercussions

The interest rate hike is set to have a direct and immediate impact on Australian households, particularly those with mortgages. David Koch, Economic Director at Compare the Market, described the hike as a ‘necessary evil’ in the fight against inflation, despite the added burden on homeowners. For instance, a household with a $600,000 mortgage is expected to see an additional $90 added to their monthly repayments, totaling over $1,000 extra per year.

Graham Cooke, Head of Consumer Research at Finder, warned that while 2025’s rate cut cycle had begun to ease mortgage stress, today’s decision would likely see it ‘rise with a vengeance.’ The property market, which saw re-accelerated growth in January with median dwelling prices hitting a national record of $912,465, is now expected to temper its growth due to increased borrowing costs and banking regulator APRA’s efforts to curb risky lending, according to Cotality research director Tim Lawless. However, an underlying undersupply of housing continues to put upward pressure on prices.

Politically, the RBA’s decision quickly drew fire. Federal Treasurer Jim Chalmers acknowledged it was ‘difficult news for millions of Australians’ but deflected criticism regarding government spending’s role in inflation. He asserted that the RBA’s statement did not mention government spending, instead pointing to ‘private demand’ as the primary driver of inflationary pressure. This claim was met with heckles in Parliament, and Nationals Senator Matt Canavan publicly called for Chalmers’ resignation, accusing him of economic mismanagement and highlighting alleged blowouts in government spending schemes.

Looking Ahead: More Hikes or a Holding Pattern?

The RBA’s monetary policy statement indicated a unanimous decision, with the board believing inflation will remain above target ‘for some time.’ This suggests the door remains open for further hikes if needed, despite Governor Bullock’s cautious tone.

Economists are divided on the future trajectory of interest rates. While the majority anticipated today’s hike, some, like Deutsche Bank chief economist Phil O’Donaghoe and AMP chief economist Shane Oliver, had expected the RBA to hold rates at 3.6 percent. They cited factors such as a downward trend in monthly inflation data, expected slowing of inflation later in the year, and potential dampening effects on consumer spending and imported inflation from a stronger Australian dollar.

However, other economists point to strong underlying economic conditions, including low unemployment (4.1 percent) and wage growth over 3 percent, as factors that could sustain inflationary pressures. Dr. Isaac Gross from Monash Business School noted that the Australian economy is ‘in a very strong position’ and that the next quarterly inflation figures in May will be crucial for determining the seriousness of the inflation uptick.

Among major banks, Commonwealth, Westpac, and ANZ anticipate the RBA will hold the cash rate at 3.85 percent for the remainder of 2026 after today’s hike. NAB stands out as the only bank forecasting an additional 25 basis point hike in May, which would bring the cash rate to 4.10 percent. The RBA itself admitted a risk of having ‘overestimated the importance of temporary factors’ in driving inflation, suggesting that if these factors prove more persistent, further rate increases could become necessary.

The RBA’s decision to reverse its cutting cycle underscores a significant shift in its monetary policy approach, prioritizing the containment of persistent inflation even at the cost of immediate economic discomfort for households. This move highlights the central bank’s commitment to its inflation target, signaling a potentially more aggressive stance than previously anticipated in a landscape where global economic uncertainties continue to shape domestic policy.