Aussies Warned: Brace for More Rate Pain After RBA Hike
Synopsis
The Reserve Bank of Australia has kicked the year off with a tough approach, pushing the cash rate to 3.85% in what is being seen as a “war on inflation”. Though Governor Michele Bullock is also wary of making any more, the country’s big banks such as CBA and NAB have begun forecasting another rise to 4.10% within just a couple of months in May. For families with a $600,000 mortgage, though, this most recent increase is adding around an extra $90 to their bills. With the “stubbornly high” inflation and savings buffers now starting to deplete, the outlook heavily favours Australian borrowers.
Australia’s central bank has ramped up its battle against inflation. At its first meeting of 2026, the central bank’s board voted to increase the official cash rate by a quarter of a percentage point to 3.85%. The decision, widely anticipated by most analysts, is the first rate increase since late 2023.
On Tuesday, RBA Governor Michele Bullock said that although inflation has eased from the record highs of recent decades, it remains “too high. The bank targets maintaining inflation between 2 and 3%, but current data indicate it is still comfortably above that band. By raising interest rates, the bank hopes to take some heat out of spending and get prices back under control by 2027. Now that rates are at a fresh high, how much higher could they go as the year continues?
Banks Foresee Another Rise in May
Although the Governor was careful not to commit to further hikes, Australia’s biggest bank is already warning about them. Both the Commonwealth Bank (CBA) and NAB have revised their forecasts, forecasting a second rate rise in May to take the RBA’s cash rate target to 4.10%.
The bank said CBA’s experts added that “core inflation” would not reach its target until 2028, a time frame which they suspect the RBA will consider to be too long. This suggests that if the inflation rate doesn’t fall dramatically over the next few months, there’s another interest rate rise, pretty much a “line-ball” certainty. Other banks such as Westpac and ANZ believe rates might remain on hold for the moment, but even they concede the risk of another hike is significant.
Why Prices Aren’t Falling Fast Enough
One reason the RBA is finding it hard to cool the economy is that many Australians still have lots of money left over to spend. Middle-class homeowners barely spent any less despite multiple rate hikes in the last cycle.
This is because about 40 per cent of homeowners have sufficient funds in the so-called “offset” or “redraw” accounts to be able to keep up their minimum payments for two years without having to adjust spending. Because these families aren’t spending less, costs for things like meals outside the home and services remain inflated. This leaves the RBA in a much more difficult position, whereby it needs to keep hiking rates in order to stop people from spending.
The Impact on Your Home Loan
This decision will be immediate and painful for typical borrowers. So if you owe $600,000 on your mortgage with 25 years to go, the 0.25% hike will add about $90 a month to your payments. If the banks are right and the rate does hit 4.10% in May, that monthly cost would be even higher.
Each of the “Big Four” has already announced it will pass on this rate rise to its customers. This is another devastating blow to the 1.3 million Australians already in “mortgage stress.” And with the “cost of living” again foremost in their minds, families are now being forced to juggle between paying the bank and buying everyday essentials.
Key Highlights
- The RBA increased the cash rate to 3.85% to prevent inflation from running higher again.
- Australia’s big banks, including CBA and NAB, are forecasting a further rise to 4.10% as early as May.
- Some research finds that many households continue to pay because they have enough money saved up.
Don’t miss any latest news, follow Inspirepreneur Magazine.
At Inspirepreneurs Magazine, covering entrepreneurship, business failures, and the human stories behind the world's most ambitious founders. She writes at the intersection of strategy and storytelling.
