Daily Rates

Will the RBA Increase Interest Rates Tomorrow?

Shivangi

Feb 2, 2026 7:28 PM IST

Category Daily Rates

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Synopsis

Tomorrow the Reserve Bank has a big call to make on interest rates and it could affect millions of Australians. With inflation surprising on the upside and the job market tightening even more than expected, many economists are now expecting a rise in the cash rate. With the Australian dollar already moving in anticipation, all eyes are on whether the central bank is cool­ing the economy now or waiting for further data. We analyse what the experts are predicting, and what a hike could mean for you.

SYDNEY — Financial markets are on tenterhooks and analysts are divided as the Reserve Bank of Australia gears up for its first major meeting of the year on Tuesday. After months of keeping the line, many investors are pricing in a good chance that the central bank will take it upon itself to lift RBA interest rates. If the board follows through with the move, it will take Australia’s official cash rate to 3.85% from its existing 3.6%.

And quite a few Australians were counting on some uplift by 2026, but recent economic data suggests this is a tall order. Prices for things people buy every day have been surprisingly resistant, and a “hotter” economy has proved many experts’ old forecasts wrong.

With the decision on rates just a few hours away, all eyes are on the RBA to determine whether our economy requires the cold shower treatment or a steady hand.

The Fight Against Stubborn Inflation

The best economic reason for a possible rate hike is the most recent information on inflation. In December 2025, inflation climbed more rapidly than anticipated. This “tick up” is going in the wrong direction for the RBA which, I’m sure, would prefer inflation to be running between 2 and 3%.

And economists fear this “underlying” inflation, a measure that takes out temporary price swings such as petrol and fruit. This number increased in the most recent release, indicating that high prices are now a permanent feature of the Australian economy rather than just a temporary issue.

Why a Hot Job Market Could Mean Higher Rates

One reason the RBA feels able to do so is simply down to the health of Australia’s workforce. Unemployment is, after all, quite low, 4.1%. This is an indication that, despite the higher costs, there are still companies hiring and people working.

The labour market is so strong that it makes it more likely that wages will rise as businesses bid up pay to attract workers. Though that may sound pleasing for workers, the RBA is concerned that it could become a cycle in which higher wages result in even more elevated prices and ensure inflation remains high for much longer.

AUD Steady As Global Risks Fade

The value of the Australian dollar is also an important piece of the puzzle. The “Aussie” has enjoyed a pick-up lately as traders prepare for higher interest rates. As counterintuitive as it may seem, a stronger currency can help reduce inflation in an economy because it makes imported goods, such as electronics and clothing, cheaper for Australians to purchase.

However, global uncertainty remains high. Some economists say that with the US dollar rising and global trade tensions still lurking as a threat, the RBA may wish to hold off for now in order to see how the world’s economies perform. They are worried that hiking rates too soon could slow the economy too much.

The Cost to Mortgage Holders

If the RBA chooses a hike tomorrow it will have a direct effect on family finances. For a family with a $600,000 mortgage, that would mean the monthly repayment could increase by nearly $90. In a year, that is over $1,000 out of the household budget.

It is this “financial pain” that the RBA seeks to impose on the economy. By forcing people who rent to spend more on their mortgages, they have less money to spend in general. Once this happens, businesses can no longer charge so much for their goods and services in order to lure your hard-earned money from your pocket.

What Happens Next?

An official announcement will then be made at 2:30 PM AEDT tomorrow. If the RBA does decide to push up, most analysts think it will only be one move with a long pause to check if it does any good. But if they opt to keep rates unchanged, they are likely to signal the prospect of a hike soon enough.

Key Highlights

• Investors are pricing a better-than-even chance of a rate increase to 3.85 per cent tomorrow.
• Inflation edged higher in December, outside of the RBA’s target band.
• The low unemployment gives the RBA confidence that the economy is strong.
• The Australian dollar is up as the market braces for a potential hike.
• The RBA’s official decision will be released at 2:30 PM AEDT on Tuesday.

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