RBA Hikes Rates to 3.85%: The ASX Stocks Set to Win and Lose

The Reserve Bank of Australia made a bold move on Tuesday, lifting the cash rate by 25 basis points to 3.85%. This marks the first rate hike since November 2023 and signals a clear shift in direction after three cuts throughout 2025.

For investors, this isn't just a headline. It's a trigger to reassess which sectors of the ASX are positioned to benefit and which may face headwinds. The decision was unanimous among RBA board members, and Governor Michele Bullock made clear that inflation remains the central bank's primary concern.

With private demand running hotter than expected and the labour market staying tight, this rate rise may not be the last. Understanding the winners and losers could make all the difference to portfolio performance in the months ahead.

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Why the RBA Raised Rates

The RBA's decision comes after a surprising pickup in inflation during the second half of 2025. After spending much of the year cutting rates to support the economy, the central bank was forced to change course.

The numbers tell the story. Monthly CPI jumped to 3.8% in December 2025, well above the RBA's 2-3% target band. The trimmed mean measure, which the RBA watches most closely, rose to 3.3% over the year. Both figures exceeded the central bank's own forecasts.

In its statement, the RBA Board acknowledged that "private demand is growing more quickly than expected" and that "capacity pressures are greater than previously assessed." Put simply, Australians are spending more than the RBA anticipated, and the economy has less room to absorb that spending without pushing prices higher.

The labour market has also remained tight. Unemployment fell to 4.1% in December, the lowest level since May 2025. When jobs are plentiful, workers have more bargaining power, which can flow through to wages and then to prices.

Markets had priced in a roughly 73% chance of a rate hike heading into the decision, so the move itself wasn't a surprise. However, NAB's economics team expects another 25 basis point hike in May, which would take the cash rate to 4.10%. This outlook suggests investors should prepare for a sustained period of higher rates.

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Sectors Set to Benefit

Not all stocks suffer when rates rise. Some parts of the market actually perform better in a higher-rate environment.

Banks

The Big Four are the clearest beneficiaries. When the RBA raises rates, banks can increase what they charge borrowers faster than they increase what they pay depositors. The gap between these two rates is called the net interest margin (NIM), and it's a key driver of bank profits.

According to research from Macquarie, the shift in rate expectations could add 2-4 basis points to bank margins across the major players. Commonwealth Bank (ASX: CBA) and Westpac (ASX: WBC) stand to benefit most because they hold larger pools of low-cost transaction deposits. All four major banks have already announced they will pass on the full 25 basis point increase to variable rate mortgage holders.

UBS has turned more positive on the sector, recently upgrading National Australia Bank (ASX: NAB), Macquarie Group (ASX: MQG), and Bank of Queensland (ASX: BOQ) to buy ratings. The broker noted that higher rates could contribute to "stronger-than-anticipated NIM performance and revenue growth."

Insurers

General insurers benefit from higher investment income. Companies like QBE Insurance (ASX: QBE), Insurance Australia Group (ASX: IAG), and Suncorp (ASX: SUN) collect premiums upfront and invest that money until claims are paid. When interest rates rise, the returns on this "float" improve.

Suncorp's recent results highlighted this dynamic, with higher investment income contributing to strong profits. The insurer's underlying insurance margin of 11.9% sits at the top end of its target range. While premium rate increases are starting to moderate, higher cash rates provide an ongoing tailwind for investment portfolios.

Cash-Rich Companies

Businesses with large cash reserves earn more on their money. Computershare (ASX: CPU) is a standout example. The company holds significant client cash and generates interest income from those balances. Every rate rise flows directly to the bottom line.

Other companies with substantial cash holdings, particularly those that have been waiting for the right time to deploy capital, will also see better returns on their reserves.

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Sectors Facing Headwinds

Higher rates create challenges for parts of the market that rely on cheap borrowing or discretionary spending.

REITs

Real estate investment trusts face a double hit. First, higher rates increase borrowing costs for property owners carrying debt. Many REITs use leverage to boost returns, so rising interest expenses eat directly into distributions.

Second, REITs now compete with term deposits and bonds for income-seeking investors. When cash accounts are paying attractive rates with no risk, the yield premium that REITs offer looks less compelling. Historically, REIT valuations tend to compress when rates move higher.

REITs with long-term, fixed-rate debt are better insulated, but investors should check the hedging profile and debt maturity schedule before assuming a REIT is protected. Names like Charter Hall Long WALE REIT (ASX: CLW), Centuria Industrial REIT (ASX: CIP), and similar property trusts warrant closer scrutiny in this environment.

Growth Stocks

Higher rates hit growth stock valuations hardest. Companies valued on future earnings potential see those earnings discounted more heavily when rates rise. A dollar of profit expected in five years is worth less today when interest rates are at 3.85% than when they were at 3.35%.

The ASX tech sector fell nearly 2% in recent trading as rate hike expectations solidified. Growth companies that don't yet generate profits, or that trade on high price-to-earnings multiples, are most exposed. Investors may need to be more selective about which growth stories justify their valuations.

Consumer Discretionary

Mortgage stress is real. A borrower with a $600,000 mortgage will see their monthly repayments increase by roughly $90 on a standard variable rate loan. For households already stretched by cost-of-living pressures, that extra money comes directly out of discretionary spending.

Retailers selling non-essential goods, furniture stores, travel companies, and other businesses dependent on consumer confidence may see softening demand. Names like Temple & Webster (ASX: TPW), Nick Scali (ASX: NCK), and similar consumer-focused stocks often underperform when mortgage stress rises.

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Key Takeaways

• Banks and insurers stand to benefit from wider margins and higher investment income. CBA, Westpac, and the major insurers are positioned well for a higher-rate environment.
  
  
• REITs and growth stocks face headwinds from higher borrowing costs and valuation pressure. Investors should review debt profiles and consider whether current prices reflect the new rate reality.
  
  
• Consumer discretionary spending may soften as mortgage repayments rise, creating challenges for retailers and travel companies dependent on household confidence.
  
  

The RBA's decision marks a turning point for investors who had grown accustomed to falling rates. Whether rates continue rising from here depends on inflation data over the coming months, but the direction of travel is now clear.

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For those looking to adjust their portfolios in response to this shift, detailed research and careful stock selection matter more than ever. Download ASR's free Top-3 Stocks & Market Outlook Report for actionable insights on navigating this changing interest rate environment.

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