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At its first meeting of the year, the central bank announced the latest cash rate amid limited housing stock and strong buyer demand, further shaping property market activity.
At its first monetary policy meeting of 2026, the Reserve Bank of Australia (RBA) decided to hike the cash rate by 0.25 points to 3.85 per cent, putting 1.3 million borrowers at risk of mortgage stress.
Today’s cash hike marked the first time the RBA increased the interest rate in the past two years.
The RBA’s decision to hike the cash rate was expected, as major banks and economists had predicted a rise in interest following the latest Consumer Price Index (CPI) and unemployment data.
The latest Australian Bureau of Statistics (ABS) data showed that the CPI for December rose to 3.8 per cent over the past 12 months, up from 3.4 per cent in November, mainly driven by housing and electricity costs.
Trimmed mean annual inflation had also accelerated to 3.3 per cent in the 12 months to December 2025, up from 3.2 per cent in November 2025.
Similarly, the latest ABS data showed that unemployment fell below expectations in December to 4.1 per cent, down from 4.3 per cent in November.
According to PRD chief economist Dr Diaswati Mardiasmo, today’s cash rate hike was expected due to inflation above the target band and lessons from delayed rate increases in 2022, which caused sharper spikes and higher living costs, and prompted investors to exit the market.
“The RBA doing a cash rate hike now, in order to tamper inflation rate as early as possible, to avoid what happened in 2022-2023,” Mardiasmo told REB.
She said that following the cash hike, borrowing capacity would decrease slightly, leaving buyers with less purchasing power, which could dampen demand and slow growth in certain areas of the market.
“The combination of slightly lower demand and what the buyer can offer can slow down price growth in some markets. Not to say prices will suddenly decline or see a massive drop, but it can act as a deterrent to higher price growth.
“With potentially fewer buyers in the market, if you are ready to go and want to enter the market, this would be a good time to do so. Less competition.”
Similarly, she said investors entering the market face the same conditions as buyers, while existing investors may see higher monthly mortgage repayments without an immediate increase in rental income, depending on their lease terms.
“Therefore, financial viability could be a question. One cash rate hike might still be absorbed within the rental income; however, continuous cash rate hikes may not.”
With the rate hike, mortgage holders will have higher monthly repayments, depending on their bank and the terms and conditions of their loan.
According to a Canstar analysis, the RBA’s first rate increase in over two years pushes average variable rates to 5.77 per cent for owner-occupiers and 6.02 per cent for investors, eliminating fixed and variable rates under 5 per cent.
Borrowers with a $600,000 mortgage and 25 years remaining could see their repayments jump by $90 a month.
Those with a $750,000 mortgage could see their monthly repayments increase by $112, while million-dollar mortgage holders would see an extra $150 added each month.
Canstar.com.au’s data insights director, Sally Tindall, said that four years into the fight against high inflation, despite early progress, the RBA has been running out of time to achieve its goals.
“While plenty of borrowers will be able to cop this on the chin, it comes on the back of an uptick in the cost of essentials such as food and the end of the electricity rebates. It could be the tipping point for those households already running on tight budgets,” Tindall concluded.
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