RBA Cash Rate Increase Signals a Shift for Australian Borrowers

The Reserve Bank of Australia (RBA) has increased the official cash rate by 25 basis points, taking the target to 3.85 per cent at its first policy meeting of 2026. This marks the first interest rate increase in over two years. The decision was driven by stronger-than-expected inflation and a resilient economy, with the central bank signalling that price pressures are likely to remain above target for some time.

The move comes after a period of rate cuts through 2025, and indicates a clear shift in monetary policy geared toward keeping inflation in check amid tightening labour markets and sustained private demand.

Why the RBA Acted Now

Key economic factors influencing the RBA’s decision include:

• Inflation running above the RBA’s 2–3% target band, with CPI rising to around 3.8% in late 2025.
• Robust employment data and tighter labour market conditions, suggesting stronger domestic demand.
• Persistent price pressures across services and goods, shifting the RBA’s assessment toward earlier tightening.

Although this is a modest hike, it shifts the narrative after a prolonged period of monetary easing, and markets are now watching closely for how further inflation prints might shape future rate moves.

What The Rate Rise Means For Borrowers and Asset Finance

Household Impact

For borrowers with variable-rate loans, the increase will likely translate into higher monthly repayments. Estimates suggest:

• A typical home loan of $500,000 could see repayments rise by roughly $79 per month.
• Larger debts will see proportionally higher costs if lenders pass the rate move on in full.

This tightening environment is designed to dampen inflation, but it also places greater pressure on household cash flow, particularly for those with variable-rate obligations.

Implications For Motorlend Asset Finance Clients

When it comes to vehicle and equipment finance:

• Cost of borrowing is rising: Asset finance products are priced off the broader cost of funds, and an RBA increase generally flows through to lender funding costs. That can lead to slightly higher finance rates on loans for cars, machinery, and equipment.
• Borrower serviceability matters more: As repayments across all loan types increase, lenders are even more focused on borrower serviceability during applications.
• Fixed vs. variable considerations: Clients considering finance now should weigh the certainty of fixed-rate payments against the possibility of further moves in the RBA cash rate.
• Stock turnover and fleet decisions: Higher finance costs can influence business decisions about fleet upgrades or equipment purchases. Planning around cash flow and timing can deliver real savings.

At Motorlend, this underscores the importance of tailored finance strategies that align with each client’s cash flow and growth plans.

What Could Come Next For Rates?

While this one-off 25 basis point hike signals a shift, economists remain divided on whether further increases will follow in 2026. Much of that outlook will depend on how inflation trends over the next few CPI releases and how strongly consumer demand holds up.

As we move into the year, borrowers and businesses should stay informed and prepared for ongoing adjustments in the lending landscape.

How Motorlend Can Support You

Rising rates mean finance decisions matter more than ever. At Motorlend:

• We help you find competitive asset finance options that reflect current market conditions.
• We assess lender pass-through behaviour on rate changes to help you choose the right structure.
• We ensure your finance package supports operational planning with confidence.

Reach out for a tailored review of your finance strategy.