Cash Rate Rises to 3.85%, Hitting Mortgage Holders

Published: 03 February 2026. The English Chronicle Desk. The English Chronicle Online.

The Reserve Bank’s cash rate decision has sent mortgage holders across Australia into immediate concern, as borrowing costs are set to rise sharply. The RBA increased the cash rate to 3.85%, up from 3.6%, marking the first rate hike in more than two years and signalling potential further increases if inflation remains elevated. This rate adjustment reflects the central bank’s efforts to manage persistently high consumer prices, with the focus keyword “cash rate” emerging as a key element in discussions of economic stability.

RBA governor Michele Bullock described the rate change as necessary to protect long-term economic health. She acknowledged the impact on households, noting that while Australians with mortgages would feel the burden, the decision was crucial to prevent inflation from spiralling further. Bullock highlighted that the board now expects inflation to remain above target for longer than anticipated, making immediate action unavoidable.

The decision concluded a brief period of rate cuts last year, which saw three reductions in February, May, and August. Analysts warn that the current increase will raise monthly repayments on a $600,000 mortgage by approximately $90, taking them to nearly $3,782. Major lenders, including the Commonwealth Bank, responded swiftly by raising variable mortgage rates by 25 basis points, effective from 13 February. The “cash rate” has therefore become the centre of national attention as Australians adjust to the new financial reality.

Economic experts had previously cautioned that a hike could stall recovery, given that inflation spikes were partially driven by temporary factors. Despite this, the RBA emphasised that consumer prices have risen steadily, with annual inflation now at 3.8%, clearly exceeding the target range of 2% to 3%. Forecasts indicate inflation could peak at 4.2% mid-year, potentially extending the cost-of-living pressures Australians already face.

Homeowners and builders alike are feeling the squeeze, as construction costs climb in response to strong demand, and durable goods, such as furniture and appliances, are also experiencing fast price growth. The treasurer, Jim Chalmers, faced criticism in parliament, where he acknowledged the hike was expected but nevertheless difficult for mortgage holders. The move also challenges government claims of maintaining economic stability following last year’s federal election.

The RBA’s statement made it clear that future rate decisions will remain data-driven. While no formal guidance was given, Bullock left open the possibility of additional hikes if inflation does not moderate. Economists at the National Australia Bank predict a follow-up 25 basis point increase in May, though uncertainties remain due to potential global shocks or further domestic price pressures.

International factors have influenced the central bank’s outlook, including ongoing trade tensions and global economic performance. However, despite such pressures, the Australian economy has shown resilience, particularly in employment, supporting the board’s view that controlled rate hikes are manageable. The unanimous vote by the RBA board underscores a shared commitment to curbing inflation and stabilising household finances over the medium term.

Financial analysts, including Russel Chesler of VanEck, stressed that the increase in the cash rate was unavoidable. Chesler argued that while the rise was widely anticipated, it represents a decisive step in confronting inflationary risks that could otherwise undermine broader economic confidence. The RBA’s projections suggest that a return to the target inflation band may not occur until mid-2027, with at least one more rate adjustment likely required.

For ordinary Australians, the impact of the cash rate hike will be tangible in monthly household budgets, affecting both mortgage holders and those seeking to enter the housing market. Economists caution that while interest rate management is a crucial tool, households must plan carefully as further increases could follow. The RBA’s commitment to monitoring financial conditions closely ensures that any future decisions will remain responsive to evolving domestic and global economic pressures.

This latest rate move marks a turning point in Australia’s monetary policy, reflecting the delicate balance between sustaining growth and curbing inflation. With consumer prices rising faster than anticipated, the RBA has signalled that its fight against inflation remains a top priority, making “cash rate” a central concern for policymakers, lenders, and households alike. The coming months will reveal whether this tightening cycle is sufficient or if additional measures will be necessary to protect economic stability.

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