RBA Rate Decision: Will Inflation Trigger a Hike Today?

Interest Rate Hike Looms as RBA Weighs Inflation Data

The Reserve Bank of Australia (RBA) is widely expected to decide today, February 2, 2026, whether to raise interest rates, following unexpectedly high inflation figures. The decision comes after a period of rate cuts and a recent hold, creating a potentially rapid turnaround in monetary policy.

All four of Australia’s ‘big four’ banks had forecast a rate hike ahead of today’s meeting, according to reports. The latest data showed the trimmed mean, the RBA’s preferred measure of underlying inflation, increased to 3.3 per cent in the year to December, while headline inflation rose to 3.8 per cent – both outside the central bank’s target band.

A 0.25 percentage point increase in the cash rate would bring it to 3.85 per cent. According to analysis from Canstar, such a move would all but eliminate home loan rates below 5 per cent, with only six lenders currently offering fixed rates under that threshold.

However, some economists believe a hold is still possible. AMP chief economist Shane Oliver expects the RBA to leave the cash rate unchanged today, but anticipates a hike in March if inflation doesn’t continue to ease. He noted that while the initial reaction to the consumer price index (CPI) data was to expect a hike, a closer look revealed a more complicated picture.

The RBA last left the cash rate unchanged at 3.60 per cent on December 9, 2025. At that time, the board acknowledged that while inflation had fallen substantially since its peak in 2022, it had recently picked up. The board’s judgement was that some of the recent increase in underlying inflation was due to temporary factors, but also noted signs of a more broadly based pick-up in inflation.

The debate centers on how the RBA interprets recent economic data. The latest inflation figures showed a headline CPI rise of 3.6 per cent annually for the December quarter, and a trimmed mean of 3.4 per cent. This was higher than the RBA’s November forecasts of 3.3 per cent for headline inflation and 3.2 per cent for the trimmed mean.

Commonwealth Bank’s head of Australian economics, Belinda Allen, highlighted three factors that could lead the RBA to pause: the board’s reaction function, the global backdrop, and a different perspective on the inflation results. Westpac also acknowledged a “small chance” the official cash rate would remain at 3.60 per cent.

The potential for a rate hike comes after the RBA cut interest rates three times last year. The central bank’s communications have become more open in recent years, with regular post-meeting press conferences by the governor.

The Australian dollar is also a factor, having risen to three-year highs as the US dollar has weakened. A stronger Australian dollar could help lower the cost of imported goods, potentially easing inflationary pressures.

The RBA’s decision and updated economic forecasts will be released in its quarterly Statement on Monetary Policy following today’s meeting.