In early February 2026, the Reserve Bank of Australia (RBA) raised the official cash rate by 25 basis points to 3.85%, marking its first interest rate increase since late 2023.
You may have seen a lot of reporting on the impact this has on mortgage holders, however this decision also signals evolving economic conditions that every business needs to understand.
How does inflation impact my business?
Inflation affects almost every aspect of running a business. You may experience:
- Higher input costs such as materials, rent and utilities
- Increased wage expectations as employees seek to keep pace with living costs
- Limited flexibility in customer pricing due to competitive pressures
Although inflation in Australia has eased from its post‑pandemic highs, it remained above the RBA’s 2–3% target band throughout late 2025, contributing to recent rate increases. For businesses already operating on tight margins, even moderate inflation can place pressure on profitability, particularly if rising costs aren’t reflected in the prices you charge.
For this reason, it’s important to regularly review your pricing structure and consider where adjustments may be necessary to maintain service levels and financial sustainability. Passing on unavoidable cost increases is a normal part of managing a business responsibly, and ensuring your pricing keeps pace with inflation helps protect long‑term viability.
What the Rate Rise Means For Cash Flow
Higher interest rates don’t just affect mortgage holders they affect businesses too, especially if you rely on credit for day-to-day operations or investment.
Cost of Borrowing Increases
Like a mortgage, if your business has a variable-rate loan or line of credit, rising cash rates usually mean your borrowing costs go up. This will reduce available working capital, making it costlier to fund inventory, payroll, or growth initiatives.
Slower Payment Cycles
When customers feel the pinch of inflation and higher rates, they reflect on their own spending habits. They might delay payments or reduce order sizes which tightens your cash cycle.
Investment Decisions Get Harder
Rising rates often lead to more cautious expenditure. Projects that looked profitable at lower rates may become marginal. You’re left with tough choices about which initiatives deliver real return on investment.
When you consider these factors, solid cash flow forecasting and management becomes more than good practice, it’s essential.
Strengthening Business Cash Flow in Tough Economic Conditions
Even with inflationary pressures and interest rates rising, there are proactive steps you can take to safeguard your business’s financial health:
Cash Flow Forecasting
Use forward-looking models that account for rate shifts and inflation trends. Scenario planning helps you anticipate turning points before they become crises.
Revisit Your Pricing Strategy
It is important to regularly review your pricing structure and consider where adjustments may be necessary to maintain service levels and financial sustainability.
Manage Working Capital
Negotiate better terms with suppliers where possible, incentivise early customer payments, and keep a close eye on inventory turnover.
Refinance
In some cases, refinancing business loans can reduce exposure to further rate rises. If you are in this situation, you should contact a broker.
These strategies don’t just protect your cash, they position your business to capitalise on opportunities that competitors might miss.
External Advice
Inflation and rate volatility aren’t meaningless economic terms, they’re real factors that can erode profit margins, stress cash reserves, and limit growth. That’s where experienced financial leadership pays dividends.
CFO services can help you:
- Build cash flow models that anticipate market shifts
- Evaluate financing options with a strategic lens
- Provide real-time financial insights on daily operations
- Align long-term growth planning with current economic signals
Market indicators suggest that the RBA’s rate rise might not be a one-off. With inflation expected to stay above target for a while, there’s potential for further increases if prices don’t cool.
Inflation and interest rates are part of the broader economic landscape, but how your business responds to them is a matter of strategy, not fate. With careful planning, dynamic cash flow management, and the right financial expertise beside you, challenges become opportunities. In an economy where borrowing costs may continue to trend upward, maintaining financial agility is one of the most powerful advantages a business can have.