The RBA has raised the official cash rate by 25 basis points to 3.85 per cent, up from 3.60 per cent. The Reserve Bank of Australia has raised the official cash rate, delivering its first interest rate hike in more than two years as it moves to contain stubborn inflation pressures.
The decision, announced following the RBA Board’s February meeting, marks a clear shift in monetary policy and reflects growing concern that inflation remains too high for too long. The central bank cited elevated services inflation, resilient consumer demand and global uncertainty as key factors behind the move.
Why the RBA acted
In its post-meeting statement, the RBA acknowledged that headline inflation has eased from recent peaks but warned that underlying price pressures remain inconsistent with its 2–3 per cent target band. Governor Michele Bullock said the Board judged that a modest tightening was necessary to ensure inflation continues to move sustainably lower.
The decision came despite clear signs that households are already under strain, highlighting the difficult balance the Bank faces between controlling inflation and avoiding unnecessary economic damage.
Impact on the Australian Dollar
The rate hike has provided immediate support to the Australian dollar, which strengthened following the announcement as investors responded to higher yields and a more hawkish policy stance. Currency analysts say the move reinforces Australia’s attractiveness to global capital, particularly at a time when other central banks are nearing the end of their tightening cycles.
However, economists caution that further gains in the dollar will depend on whether the RBA signals additional hikes or adopts a wait-and-see approach in coming months.
What It Means for Households
For Australian households, the decision brings renewed pressure.
Banks are expected to pass on the increase in full, pushing mortgage repayments higher, particularly for borrowers on variable rates. Analysts estimate that a typical household with a large mortgage could face several hundred dollars a year in additional costs.
Consumer groups have warned that the impact will be uneven, with lower-income households and recent homebuyers most exposed.
Housing Market Implications
In the housing market, higher interest rates are likely to cool borrowing demand and further constrain affordability. While strong population growth and limited housing supply continue to support prices in many regions, economists expect the rate hike to slow momentum and weigh on buyer sentiment.
Some analysts argue the move may help reduce longer-term risks in the housing market by tempering excessive leverage, even as it increases short-term financial stress.
What Comes Next
Despite the hike, the RBA has stopped short of signalling a sustained tightening cycle. The Board stressed that future decisions will depend on incoming data, particularly inflation, wages and household spending.
Markets are now divided on whether this marks a one-off adjustment or the start of a renewed tightening phase. What is clear, however, is that the era of guaranteed rate relief has ended — and households, investors and policymakers alike must now adjust to a higher-for-longer environment.
