RBA Hikes Rates for First Time in Two Years Amid Persistent Inflation

The Reserve Bank of Australia raised its cash rate by 25 basis points to 3.85% on February 3, 2026—the first increase in two years—citing stronger-than-expected economic growth and inflation likely to remain above its 2%–3% target range. The move follows two consecutive quarters of upside inflation surprises and a seven-month low in unemployment at 4.1%. Underlying inflation rose 0.9% quarter-on-quarter in Q4 2025, pushing annual core inflation to 3.4%, the highest in over a year. The RBA noted tighter labor markets, robust consumer spending, and elevated housing prices as signs that financial conditions may still be accommodative. Markets now price a 75% chance of another hike in May and expect 40 basis points of total tightening in 2026.