RBA holds cash rate at 3.60% as inflation stays above target and AUD steadies

Australia’s central bank kept interest rates unchanged at its first meeting of 2026, defying widespread expectations for a hike after a hotter end-of-year inflation print. The decision, released at 10:30 p.m. ET on Monday, February 2, 2026, leaves the cash rate target at 3.60% and puts the spotlight back on incoming inflation data and how quickly price pressures cool.

The hold lands in a tense spot for households and markets: inflation is still running above the 2–3% target band, but the economy has also been navigating uneven growth, high living costs, and sensitivity to even small shifts in borrowing rates.

The rate decision and what it means now

Keeping the cash rate at 3.60% means variable mortgage and business borrowing benchmarks avoid an immediate upward reset. For markets, the bigger message is caution: policymakers appear unwilling to tighten further without clearer evidence that inflation persistence outweighs the risks to demand and employment.

Even without a hike, the decision doesn’t read as “all clear.” With inflation still elevated, the bank’s posture remains restrictive, and the bar for rate cuts looks high unless price data softens convincingly.

Inflation: 3.8% at year-end keeps pressure on policy

The latest widely watched inflation snapshot showed consumer prices up 3.8% over the year to December 2025, underscoring why investors had leaned toward a tightening move. Housing-related costs and other services have been central to the stickiness story, while some goods categories have been more mixed.

A key change for 2026 is the data cadence: Australia’s inflation reporting now has a stronger monthly rhythm, meaning policymakers and traders will have more frequent checkpoints rather than waiting on fewer big quarterly moments.

Markets were positioned for a hike

In the days leading into the decision, pricing in interest-rate futures and broad market commentary had tilted toward a roughly three-in-four chance of a 25-basis-point hike. That setup mattered because it raised the odds of a quick market reaction if the central bank surprised either way.

A hold, in that context, typically removes some “hawkish premium” that can build into bond yields and the currency. The move also shifts attention to the next inflation release as the most obvious catalyst for repricing.

AUD/USD and the currency angle

The Australian dollar has been trading with a firm tone in recent sessions, supported by global risk sentiment and the market’s earlier expectation that Australia might need tighter policy to contain inflation.

By the end of Monday, February 2, 2026 (ET), AUD/USD was around 0.695, leaving the currency near levels that have recently acted as a psychological pivot for traders. If the market gradually backs away from near-term hike expectations, that can reduce support for the currency. If inflation re-accelerates or proves stubborn, the rate-hike conversation can return quickly, especially with more frequent CPI updates.

Key numbers and dates to watch

The forward look: what could change the outlook

The next few weeks are likely to revolve around a simple question: does inflation cool fast enough to keep rates stable, or does persistence force the central bank to tighten later in 2026?

Three practical signposts will shape expectations:

• Monthly CPI trend, not one print: A single number can be noisy. A run of firmer readings would rebuild the case for a hike, while consistent easing would argue for patience.

• Services and housing costs: These have been the areas most likely to keep inflation above target. If they don’t slow, it’s harder to declare victory.

• Currency and financial conditions: A stronger Australian dollar can help lean against imported inflation; a weaker one can do the opposite. Market-driven shifts in borrowing costs also matter alongside the policy rate itself.

For now, the central bank has chosen to hold at 3.60% and wait for the next wave of inflation evidence. The decision reduces immediate pressure on borrowers, but it also raises the stakes for the upcoming CPI release—now the clearest near-term trigger for the next big move in interest-rate expectations.

Sources consulted: Reserve Bank of Australia; Australian Bureau of Statistics; ASX; Trading Economics