The RBA lifts cash rate to 3.85% — and while the move was widely forecast, the implications are bigger, broader, and more persistent than many borrowers expect.
When the Reserve Bank of Australia delivered its first monetary policy decision of 2026, it wasn’t just raising rates. It was sending a clear message: inflation is proving more stubborn, demand is running hotter than expected, and the era of “easy money” isn’t returning anytime soon.
If you’ve got a mortgage, are thinking of buying, or are watching the housing market closely, this is a shift you can’t ignore.
RBA Lifts Cash Rate to 3.85%: What Actually Happened
The RBA lifted the official cash rate by 0.25 percentage points, taking it from 3.6% to 3.85%.
In its statement, the Board acknowledged that inflation has eased substantially since peaking in 2022 — but crucially, it re-accelerated in the second half of 2025.
In plain English: inflation is falling, but not fast enough and not smoothly enough to justify staying on hold.
Why the RBA Lifts Cash Rate to 3.85% Despite Earlier Cuts
Inflation Is Falling — But Not Back to Target
One of the most searched questions right now is: why is the RBA raising rates again?
The RBA’s answer is straightforward. While headline inflation has come down, underlying inflationary pressures remain elevated, particularly due to capacity constraints in the economy.
The Board explicitly warned that inflation is now likely to remain above target for some time, which leaves monetary policy little choice but to lean restrictive.
Private Demand Is Running Hotter Than Expected
Another major factor behind the decision to lift the cash rate to 3.85% is demand.
The RBA flagged that:
- Household spending has rebounded more strongly than forecast
- Business investment has surprised on the upside
- Economic momentum has picked up across multiple sectors
In short, Australians are still spending — and that keeps inflation alive.
Housing Market Pressures Are Back on the Radar
RBA Lifts Cash Rate to 3.85% as Housing Activity Accelerates
Housing played a central role in the RBA’s thinking.
The Board noted that activity and prices in the housing market continue to pick up, reinforcing inflation risks. This matters because housing feeds directly into:
- Construction costs
- Rents
- Household wealth and spending behaviour
For borrowers, this means rate hikes aren’t just about inflation data — they’re also about containing renewed housing momentum.
What the RBA Said About Jobs and Wages
Labour Market Still ‘A Little Tight’
Another reason the RBA lifts the cash rate to 3.85% is the labour market.
While employment conditions have stabilised, the RBA said the market remains “a little tight”, consistent with stronger economic momentum. Tight labour markets increase wage pressure, which in turn feeds inflation.
This dynamic is exactly what central banks try to prevent from becoming entrenched.
From Rate Cuts to Rate Hikes: A Clear Policy Shift
It’s easy to forget that the RBA cut rates three times in 2025, with the last cut delivered in August.
This latest move marks a clear pivot:
policy is no longer easing — it’s actively guarding against a resurgence in inflation.
The takeaway is simple: the RBA is comfortable moving in either direction, depending on the data.
What Does the RBA Lifts Cash Rate to 3.85% Mean for Home Loans?
Will Mortgage Rates Rise After the RBA Decision?
In most cases, yes.
Major lenders such as Commonwealth Bank, ANZ, NAB and Westpac typically pass on RBA hikes to variable-rate borrowers in full.
That means:
- Variable-rate repayments are likely to increase
- Borrowers rolling off fixed rates will face higher pricing
- Refinancing decisions matter more than ever
Is This the Last Rate Hike?
Another high-intent question: Will the RBA hike again in 2026?
The honest answer is: possibly.
The RBA has been careful not to lock itself into a path. If inflation remains sticky or demand continues to surprise on the upside, further tightening remains on the table.
This is why the Bank’s message matters as much as the move itself.
Frequently Asked Questions RBA Rate Hike
Why did the RBA lift the cash rate to 3.85%?
Because inflation picked up again in late 2025 and demand pressures remain stronger than expected.
What is the current RBA cash rate?
As of the first monetary policy meeting of 2026, the cash rate is 3.85%.
Will this affect my mortgage repayments?
Yes. Variable-rate borrowers should expect higher repayments if lenders pass on the hike.
Is inflation still a problem in Australia?
Yes. Inflation is lower than its peak but remains above the RBA’s target range.
My Take: This Was a Warning Shot, Not a Surprise
From my perspective, this wasn’t a shock move — it was a deliberate signal.
The RBA is telling households and markets that:
- Inflation isn’t beaten yet
- Demand needs to cool further
- Policy will stay tight if required
In other words, don’t bank on rate relief just yet.
Sources
- Reserve Bank of Australia – Monetary Policy Statements: https://www.rba.gov.au
- Australian Bureau of Statistics – Inflation data: https://www.abs.gov.au
- Treasury of Australia – Economic outlook: https://treasury.gov.au
What to Do Next
When the RBA lifts the cash rate to 3.85%, doing nothing can be expensive.
Now is the time to:
- Review your variable rate
- Check what you’ll roll onto if your fixed rate ends
- Compare lenders, not just your current bank
Head to the RateBuster homepage to compare current home loan rates or explore more guides to help you make smarter decisions in a higher-rate world.
Because when rates move, the borrowers who act early usually win.
