RBA hands down February cash rate decision

On Tuesday (3 February), the RBA hiked the official cash rate by 25 basis points to 3.85 per cent, the central bank's first rate hike in over two years.

In its monetary policy decision statement, the RBA said:

"A wide range of data over recent months has confirmed that inflationary pressures 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.

"The Board judged that inflation is likely to remain above target for some time and it was appropriate to increase the cash rate target."

The RBA last hiked interest rates in November 2023, which saw the cash rate target jump from 4.10 per cent to 4.35 per cent. In 2025, the RBA cut the official cash rate three times, leaving it steady at 3.60 per cent from August 2025.

Hotter-than-expected quarterly inflation data released last Wednesday (28 January) caused markets and economists to brace for a possible rate hike, after the ABS revealed that headline inflation increased by 3.8 per cent over the year to December 2025.

As of Monday (2 February), markets priced in a 72 per cent chance of a rate hike to 3.85 basis points, and a 28 per cent chance of a hold.

Off the back of December quarter inflation data, BDO chief economist Anders Magnusson said the inflation reading had reinforced the message that underlying price pressures were proving more stubborn than expected.

“With inflation now overshooting the Bank’s forecast for two consecutive quarters, the likelihood of a rate hike has increased substantially. Markets were already pricing a significant chance of tightening, and today’s result will only strengthen that expectation,” he said.

“Further, the tight labour market provides the RBA with ample room to act. With unemployment still low and the economy operating close to capacity, the risk that higher interest rates could jeopardise full employment is diminished.”

Following the February rate hike, Employment Hero CEO and co-founder Ben Thompson said:

“The rate increase isn’t a surprise given inflation has come in above expectations and unemployment has fallen to 4.1 per cent. The challenge is that higher rates will add pressure for households and small businesses at the same time as the labour market is already starting to cool per Employment Hero data.

"The latest Employment Hero jobs data shows hiring is slowing and employers are cutting hours. That’s most pronounced amongst younger Australians and in casual, shift-based roles - jobs that depend on rostered hours, weekend shifts and seasonal demand. While the rise is clearly intended to curb inflation, we’d expect that cooling trend to become more evident in our data as business owners navigate a tougher environment."