On 3 February 2026 the Reserve Bank of Australia’s Monetary Policy Board raised the cash rate by 25 basis points to 3.85%. The decision was unanimous and it is the first increase after the prior easing cycle. If your planning for this year assumed stable or falling rates, it is time to revisit those assumptions.
Why the Board moved
The Board pointed to underlying inflation, measured by the trimmed mean, rising to 3.4% over the year to the December quarter of 2025. It also said the inflation outlook had been “revised materially higher” and noted that inflation “picked up materially in the second half of 2025”. In plain terms, prices grew faster than expected late last year and the Board has acted to pull that back towards target.
The cash rate had been 3.60% before the move. The decision is published on the RBA website.
What it means for your borrowing costs
Most business finance is priced off variable rates, so an increase flows through quickly. Expect higher costs on overdrafts, business loans and equipment finance as lenders reprice their books.
Two practical responses are worth making this month. First, review your facility pricing. If you have not tested what you are paying in the past year, talk to your lender or broker about whether your rate and fees are still competitive. Second, revisit your mix of fixed and variable exposure. There is no universally right answer; the point is to make the choice deliberately rather than by default.
Softer demand and the risk of further increases
Higher rates also work on the demand side. Households tend to spend less when repayments rise, so consumer-facing businesses should expect demand to soften. There is also a genuine risk of further increases while inflation stays above target.
A sensible discipline is to stress-test your cash flow at rates another 50 basis points higher than today. If the numbers still work, you have headroom. If they do not, you have found out early enough to act. Check your pricing at the same time. If your input costs are rising, work out how much you can pass through to customers and on what timetable.
Fuel tax credit rates changed on 2 February too
A smaller change arrived in the same week. From 2 February 2026 the ATO indexed fuel tax credit rates up, applying a CPI factor of 1.019. The new rates are 20.2 cents per litre for diesel or petrol used in heavy vehicles on public roads and 52.6 cents per litre for off-road business use, which covers machinery, tools and auxiliary equipment.
Rates are indexed each February and August. You must use the new rates for fuel acquired from 2 February; if your bookkeeping is still running the old rates you will understate the claim on your BAS. The current rates are listed on the ATO website.
What to do now
- Review your facility pricing and talk to your lender or broker about repricing or refinancing.
- Revisit your fixed versus variable exposure and make a deliberate choice.
- Stress-test your cash flow at rates another 50 basis points higher than today.
- Work out how much of any cost increase you can pass through in your own pricing.
- Update the fuel tax credit rates in your BAS process for fuel acquired from 2 February 2026.
Before you act
This article is general information only and is not tax or financial advice. Your circumstances matter. Confirm fuel tax credit rates and BAS treatment with a registered tax agent and check rate settings against the official RBA source before making decisions.