The Reserve Bank of Australia (RBA) raised the cash rate by 0.25%, from 3.6% to 3.85%. This is the first rate hike in over two years, ending the shortest rate-cutting cycle in the RBA’s history. The hike followed three rate cuts last year in February, May, and August. Mortgage holders will feel the impact, with a $600,000 home loan’s monthly repayment rising by $90 to $3,782, as per Canstar. Some experts warned that this increase could hurt the economic recovery, but the RBA decided the rise was necessary. The bank noted that inflation pressures have grown noticeably in the second half of 2025. “A wide range of data over recent months have confirmed that inflationary pressures picked up materially in the second half of 2025,” said the RBA. It added that private demand is stronger than expected, capacity pressures are higher, and the labor market remains tight. The RBA now expects headline inflation to reach 4.2% by mid-year, higher than earlier forecasts. This means inflation will take longer to ease, prolonging cost-of-living challenges. Prices for new homes and durable goods like furniture and appliances are rising quickly due to strong demand. The bank mentioned these price rises might be temporary if housing demand slows, but said this outlook is uncertain. Strong labor markets, household spending, government expenditure, and business investments have driven inflation up. Also, international factors like tariffs have not slowed the global economy much, reducing the need for more rate cuts. RBA Governor Michele Bullock will hold a press conference at 3:30pm. The rate hike decision was unanimous. Russel Chesler, head of investments at VanEck, said, “While the move was widely expected, it marks a clear escalation in the fight against inflation.”