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RBA Weighs Rate Decision for First 2026 Meeting Amid Elevated Inflation

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RBA Signals Policy Shift: Rate Cuts Unlikely, Focus on Extended Hold or Potential Hikes

The Reserve Bank of Australia (RBA) has indicated a significant shift in its monetary policy outlook as it approaches its first meeting of 2026. The central bank is moving away from contemplating interest rate cuts, instead focusing on an extended period of holding rates steady or even implementing potential increases. This repositioning follows definitive statements from RBA Governor Michele Bullock, who has stated that rate reductions are not anticipated "for the foreseeable future."

Financial markets and economists are presenting a diverse range of expectations for the upcoming decisions, particularly regarding the crucial February meeting.

RBA's Evolving Stance

At the close of 2025, the RBA clearly communicated a revised outlook on interest rates. Governor Michele Bullock clarified that rate cuts were not expected in the near term, outlining an extended period of rates on hold or a potential rate rise as the primary options being considered by the RBA board.

"Rate cuts are not anticipated 'for the foreseeable future'," RBA Governor Michele Bullock stated in December 2025.

This sentiment has been reinforced by Deputy Governor Andrew Hauser, who noted that recent declines in inflation have not altered the unlikelihood of near-term rate reductions. The RBA's official cash rate currently stands at 3.6%, a level it has maintained since August 2025.

Key Economic Data and Mandate

The RBA's mandate is centered on maintaining price stability, targeting consumer price inflation between 2% and 3%, and achieving full employment. The central bank closely monitors data from the Australian Bureau of Statistics (ABS) to gauge progress toward these objectives.

Upcoming key economic data releases for early 2026, vital for the RBA's February decision, include:

  • November 2025 Monthly Consumer Price Index (CPI): Released Wednesday, January 7, 2026.
  • December 2025 Labour Force Figures: Released Thursday, January 22, 2026.
  • December 2025 Monthly Consumer Price Index (CPI): Released Wednesday, January 28, 2026.
  • December Quarterly CPI data: Scheduled for release by the ABS at the end of January, this data is expected to be crucial for informing the RBA's view on inflation.

In November 2025, the unemployment rate was 4.3%, accompanied by a decrease in employment levels. The Consumer Price Index (CPI) recorded a 3.4% increase for the year ending November, while the RBA's preferred trimmed mean measure of underlying inflation stood at 3.2%.

Deputy Governor Hauser acknowledged that while the latest inflation data was "helpful" and consistent with expectations, inflation above 3% is still considered elevated. He emphasized the RBA's focus on inflation targets over a one-to-two-year period, incorporating demand, labor market conditions, and global economic trends, rather than relying on single data points.

The RBA's November forecasts had projected inflation to remain above 3% into 2025 and 2026 before gradually returning towards the 2.5% target, assuming eventual interest rate reductions. Deputy Governor Hauser indicated that updated forecasts for the December quarter of 2025 might project underlying inflation to be slightly higher than initially expected. He also noted that if market pricing assumes a cash rate rise to nearly 4% by year-end, this could offset any minor inflation miss and keep overall forecasts on track.

Upcoming Monetary Policy Meetings

The RBA's first monetary policy board meeting of 2026 is scheduled for Monday, February 2, and Tuesday, February 3. The interest rate decision is slated for announcement at 2:30 PM AEDT on February 3.

The RBA monetary policy board is scheduled to meet eight times in 2026. Decisions are released at 2:30 PM Sydney time (AEDT/AEST) on the following dates:

  • February 3
  • March 17
  • May 5
  • June 16
  • August 11
  • September 29
  • November 3
  • December 8

Following each decision, Governor Michele Bullock conducts a press conference. A statement from the board accompanies the decision, and the minutes of the meeting are released two weeks later.

Market and Economist Forecasts

Current market pricing, based on Bloomberg data and other analyses, reflects a divided outlook for the February meeting. Market predictions indicate a 34% probability of a rate hike in February, suggesting that the most probable outcome for the next meeting is a steady cash rate of 3.6%. Other market analyses suggest a two-thirds probability of rates remaining unchanged and a one-third probability of a rate increase.

By June, market pricing suggests a 93% chance of a rate hike, with a 0.25 percentage point increase fully priced in by August.

Major bank economists have presented varied forecasts:

  • NAB: Predicts two 0.25 percentage point hikes, in February and May.
  • CBA: Forecasts one hike in February.
  • Westpac and ANZ: Expect an extended period of rates on hold. ANZ acknowledges a risk of a hike in early 2026, while Westpac identifies risks on both sides of the monetary policy stance.

A survey of five leading economists indicated a leaning towards a rate increase, with four favoring a hike and one remaining on the fence.

Arguments for an Interest Rate Increase include:

  • Inflation levels remaining above the RBA's 2-3% target band.
  • A rise in the "trimmed mean" measure of underlying inflation, from 3.2% in November to 3.3% in December.
  • A low unemployment rate, which was 4.1%, providing the RBA with flexibility for policy adjustments.

Arguments for Maintaining Current Rates include:

  • Stable inflation expectations and moderate wage growth, with no wage-price spiral observed.
  • Resilience in the global economy and an appreciation of the Australian dollar's value, which could help to restrain imported inflation.
  • The potential benefit of waiting for additional data before making a decision.

RBA Officials' Perspectives

Governor Bullock stated in December 2025 that the RBA would monitor incoming inflation data to assess whether inflationary pressures were persistent. If inflation remained persistent and did not trend towards the target, the board might consider adjusting interest rates, with decisions made on a "meeting-by-meeting" basis.

Deputy Governor Hauser affirmed that the RBA, with the cash rate at 3.6%, is in a position to assess economic developments before making its next move. He noted that the RBA has historically favored periods of rate stability.

"Inflation above 3 per cent... is too high," Deputy Governor Andrew Hauser commented, reiterating the RBA's concern.

However, Hauser also indicated an open mind to scenarios where inflation could return to target without further rate increases, or even with scope for future cuts, such as in the event of a weaker economy, a global financial shock, or increased productivity. These, however, are not the bank's central case. He also mentioned international economic factors, such as the US strike on Venezuela, and its potential to influence global oil prices, though these effects had not materialized.

Potential Impact on Households

RBA interest rate adjustments directly affect borrowing costs and savings returns for Australian households. Canstar analysis indicates that a 0.25 percentage point rate hike could increase minimum monthly mortgage repayments by $90 to $150 for loans ranging from $600,000 to $1 million.

Current average rates include:

  • Average variable rate (existing owner-occupiers): 5.51%
  • Average fixed rate (new owner-occupier loans, three years or less): 5.1%

Fixed rates increased in December 2025, with 43 lenders, including three of the four major banks, implementing hikes. If the RBA implements a hike in February, it is expected that most banks would pass on a full 0.25 percentage point increase to borrowers. The impact on savings rates is less uniform, with the average ongoing savings rate at 3.07%, although higher rates are available through market comparison.