RBA Raises Interest Rate to 3.85% Amid Resurgent Inflation

The Reserve Bank of Australia (RBA) raised its cash rate by 25 basis points to 3.85% on February 3, 2026—the first hike since November 2023—after inflation accelerated to 3.8% year-over-year in December 2025, up from 3.4% in November. The move reverses three 25-basis-point cuts made in February, May, and August 2025. The RBA targets inflation between 2% and 3% and cited persistent price pressures driven by strong household spending and investment. Despite global economic uncertainty, Australia’s major trading partners have shown stronger-than-expected growth. Treasurer Jim Chalmers called the hike “difficult news” for borrowers but rejected claims that government spending fueled inflation. EY Oceania Chief Economist Cherelle Murphy noted the economy appears “too hot,” with unemployment falling to 4.1% in December, and warned another rate hike later in 2026 remains possible.