The Reserve Bank has lifted the cash rate by 0.25 percentage points, citing re‑accelerating inflation and an economy still strong enough to sustain price pressures.
For many households, that means monthly repayments will jump by well over $100.
PropTrack modelling, which assumes a typical home loan rate rising from 5.5 per cent to 5.75 per cent in February, shows Sydney borrowers will wear the biggest hit, with average repayments up $156.20 from $5,618.84 to $5,775.04.
The typical monthly increase is estimated at $129.18 in Brisbane, $121.47 in Perth, $115.66 in Adelaide, $109.86 in Canberra, $107.20 in Melbourne, $88.89 in Hobart and $73.24 in Darwin.
“As was widely expected, the RBA increased the cash rate 25 basis points at its first meeting of 2026,” REA Group senior economist Angus Moore said.
“This comes in response to higher‑than‑expected inflation in the December quarter, and unemployment dropping back down to 4.1 per cent.”
Mr Moore said the path of prices would determine what happens next.
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Source: PropTrack
“How inflation evolves across the start of 2026 will be the driver for where interest rates go from here. At the moment, another hike is expected by mid‑to‑late 2026, but whether that happens will be dictated by how persistent inflation is.”
He added that while home prices are still expected to grow this year on the back of last year’s cuts and solid economic and housing fundamentals, higher rates would likely slow the pace.
Ray White chief economist Nerida Conisbee said inflation picked up again in December, with headline CPI at 3.8 per cent and trimmed mean at 3.3 per cent.
“Both measures are now moving further away from the RBA’s 2 to 3 per cent target band, weakening confidence that inflation will return to target without additional restraint,” she said.
She said the labour market continued to give the central bank room to act.
“Unemployment remains low at 4.1 per cent and employment is still growing, supporting household incomes and spending. With demand holding up and inflation pressures broadening across both goods and services, the RBA has judged that policy needs to become more restrictive.”
Source: Ray White
Housing, however, remains a thorny trade‑off.
“Rents, electricity and new dwelling costs continue to rise, driven by a shortage of housing rather than excess demand,” Ms Conisbee said. “
Higher interest rates will not resolve these structural constraints. In fact, by lifting financing costs for developers and investors, higher rates are likely to further restrict new supply and place additional upward pressure on rents.”
Despite that, she said, the RBA had chosen to prioritise broader inflation control.
“With inflation re‑accelerating and the economy confirmed as still strong, the Bank has judged that the risk of inflation becoming entrenched now outweighs the risk of further tightening, even if it exacerbates housing cost pressures.”
Australia’s housing market has proved resilient despite higher borrowing costs.
Prices rose about 12 per cent in 2025, supported by robust population growth and very limited new supply.
“The decision signals a central bank that is increasingly concerned inflation is not yet under control and is prepared to accept greater strain on the housing market to ensure inflation is brought back toward target,” Ms Conisbee said.
Refinancing is also likely to heat up.
Ray White chief economist Nerida Conisbee
Equifax executive general manager Moses Samaha said today’s increase could spark a short burst in refinancing, mirroring the start of the 2022 tightening cycle.
“In 2022, the reaction to the first rate hike was immediate. As soon as rates rose in May 2022, refinance volumes lifted 25 per cent compared to the previous month,” he said.
Equifax analysis shows refinancing inquiries were already rising into the move, up 9.6 per cent in the December quarter of 2025 compared to a year earlier.
By age, homeowners 46 and over led refinancing growth for the first time since 2023, with inquiries up 12 per cent year‑on‑year in the quarter, followed by 35‑ to 46‑year‑olds at 11.1 per cent.
By state, Queensland led with a 14.5 per cent annual rise in refinancing inquiries in the quarter, followed by New South Wales at 10.6 per cent.
“We’re seeing refinancing demand being driven by older demographics as mortgages stretch further into later life,” Mr Samaha said.
“As Australians are taking longer to enter the market, and as mortgage sizes are growing, mortgage debt can’t be considered just a young family’s burden – Gen X and pre‑retirees are still actively refinancing. Based on this trend, we could expect to see Australians carrying mortgage debt much later into their lifespans and careers than previous generations.”
For borrowers, the message is clear: brace for higher repayments now, and watch the early‑2026 inflation prints – they’ll set the tone for where rates head next.
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