Following the Reserve Bank of Australia’s decision to increase the official cash rate this week/today, NAB’s standard variable home loan interest rate will rise by 0.25% p.a. from 13 February 2026.
03 February 2026 | 1 min read
4 February 2026
NAB Chief Economist, Sally Auld, unpacks today’s decision by the Reserve Bank of Australia (RBA) to increase the cash rate by 0.25bps to 3.85%.
Key points:
- In a unanimous decision, the RBA Monetary Policy Board increased the cash rate to 3.85%.
- For the second consecutive quarter, there were meaningful upward revisions to the RBA’s trimmed mean forecasts in the quarterly SoMP; longer-term GDP forecasts were revised down and there is now a gentle upward drift in the unemployment rate forecasts.
- The RBA sees the labour market as a “little tight” and that capacity constraints are binding more than previously expected.
- NAB expects the RBA to deliver another 25bp increase in the cash rate in May; risks are biased towards more than 50bps of hikes. The RBA could also remain on hold at 4.1% longer than we currently expect.
Outcome and assessment
The RBA increased the cash rate by 25bp to 3.85%, with the Statement noting that “…inflation is likely to remain above target for some time.” The SoMP provides a little more colour to this assessment, observing “…Strong inflation outturns in the second half of 2025 indicate that there is greater breadth and strength to current inflationary pressures than previously assessed.”
However, there are other dynamics at work too – private demand growth has been stronger than expected, the unemployment rate has been a little lower than expected and there are greater capacity pressures in the economy. Financial conditions were assessed as easing over 2025 and housing activity and prices continue to pick up.
The Statement notes that the RBA is willing to attribute some of the pick-up in inflation to temporary factors, reflecting “…sector-specific demand and price pressures that are expected to wane over the coming year…” But with the RBA’s core inflation forecast for June 2026 having increased by 110bps in the space of six months, little comfort should be taken from this assessment.
A narrative which reflects an economy where “…private demand is growing more quickly than expected, capacity pressures are greater than previously assessed and labour market conditions are a little tight” means that this is unlikely to be a “one and done” scenario for the RBA. We continue to forecast a follow-up 25bp hike in May, although risks are biased to an earlier hike and the possibility of more than just a modest 50bp recalibration. Indeed, the Statement refers only to upside risks for the domestic economy, and global uncertainty is viewed as significant but of little consequence for the Australian economy. Should inflationary pressures prove more persistent and / or domestic economic activity surprise on the stronger side of expectations, the RBA may be forced to consider the need for a larger policy adjustment in 2026.
For further analysis, read the full report here.
