While widely-anticipated, the Reserve Bank of Australia's (RBA) decision to increase the cash rate was met with few cheers on Melbourne Cup Day.
The nation's central bank increased the official cash rate (OCR) by 25 basis points, the fifth interest rate hike of the year, bringing rates to 4.85%. That's the highest level in 18 years, equivalent to rates during the Great Financial Crisis (GFC).
And this may not be the end for 2026.
"We don't know yet how this is going to play out," RBA Governor Michele Bullock told reporters Tuesday evening after the decision was revealed. "The underlying assumption is the cash rate part, one more rise. It may work out that that doesn't work out to be enough. It doesn't mean there won't be more interest rate increases.
"I don't know what the next move will be. I don't give forward guidance," she continued. "There's now five interest rate rises in the system. The last three haven't even started to flow through yet. It is probably a good point to take stock for a minute and see what comes in, in terms of the data, see if we're traveling more or less in line with the forecast. What that means for interest rates in the future, I don't know the answer to that. But all I can say is that the board will be watching very closely. Because there is still a bit of a skew on the upside to the inflation risk. And we need to be alert to those materialising.
"Monetary policy will work, but it doesn't work instantaneously," Bullock added. "If we just let inflation run, it will just lead to much worse outcomes: much higher prices, more unemployment and lower growth. We are using the cash rate to stop that from happening. Some pain now will prevent even worse pain down the track. Returning inflation to target is our priority and we will do what is necessary to achieve that. It's not a good situation to be in. and we're very uncomfortable with it. It's part of the reason why six members voted for a raise today."
Australian Broker spoke with market participants to get their thoughts on what another interest rate rise means for the nation's loan and housing markets.
Director, mortgage broker and property finance strategist at Sydney-based Strategic Asset and Equipment Finance
"The market is already pretty much close to the bottom in terms of what we're seeing from a consumer action perspective. I just think it's going to be subdued for longer now [with the fifth interest rate hike]. I still think that the market's going to be either soft or softer for the next, probably, six months. But, I mean, it's already soft out there. I have been speaking with a number of different real estate agents, and they say clients are taking a little bit more time to transact. Some people are sitting on the fence. Other people are looking at it going, well, you never know when the bottom is exactly.
The market is just sort of changing [opportunities for brokers]. Brokers are working with refinancers or upgraders. We're staying close with our existing client base and speaking with them, reviewing their loans, seeing what can be done to lower their interest rates, or refinance into another lender that's got potentially a better offer. And then, having discussions with them around what their holistic plans are over the next one, two, three, five years."
"The increase could add approximately $119 a month to repayments on a $731,000 mortgage, equivalent to the national average new owner occupier loan. Every household will experience this decision differently. A positive step borrowers can take today is to understand what it means for their repayments, their budget and their plans. A mortgage broker can review your current loan, compare alternatives and explain the costs, features and lending requirements that matter to your circumstances. You do not have to work through these decisions on your own. A broker is there to help you understand your options and move forward with confidence. For prospective buyers, the conversation starts with what they can comfortably afford, alongside what they may be eligible to borrow. For existing homeowners, a broker can explore a more competitive rate with their current lender or assess whether refinancing makes financial sense. Where refinancing is not suitable or available, that conversation still has value. A broker can help clients understand their position and, where repayment assistance is needed, engage with their lender early."
Economist at the Australia and New Zealand Banking Group (ANZ)
"I think momentum is going to be pretty soft for the housing market. We downgraded our forecasts for housing prices just last week, actually. We're looking for capital city housing prices to fall 13.5% from their peak in March. We've got Sydney prices falling about 15.5% from their peak. And I think probably the biggest change in our forecast was the fact that we're now more pessimistic on the smaller capitals like Adelaide, Perth and Brisbane, than we were previously. We're seeing that momentum's really come off in those cities. So I think it's going to be a challenging environment over the next half a year or so in particular. If you think about our forecast, we've got housing prices pretty weak over the first half of the year. I think as you move through the second half of the year, you'll start to get a bit of a rebound in Sydney and Melbourne in particular, because they are more rate-sensitive cities. Brisbane, Perth, Adelaide are likely to lag that recovery a little. So I would have those markets, looking soft for most of next year. But we do think that things will start picking up in late 2027 and then into 2028.
We're not forecasting a recession. I think you still have quite a few factors that are contributing to growth. We've got public demand, or government spending. We've also got the AI or data center buildout going on. These things support the economy. I think one of the themes that you're going to really see in the economy is a bifurcation of outcomes across different sectors."
Hobart-based economist
"The rate rise will put further downward pressure on house prices. Whether you think that's a bad or a good thing depends on whether you're an owner or a prospective owner. And it will almost certainly lead to unemployment getting to 5%, maybe a little higher than that, something which Michelle Bullock acknowledged was increasingly likely. And we will almost certainly have more quarters of negative growth in real per capita GDP, that is, after you strip out the impact of population growth. That is consecutive quarters of negative growth in real GDP. I'm not sure it means a recession. I'm not sure that's inevitable with one more increase in the cash rate, but we will certainly experience slower economic growth, weaker housing prices and higher unemployment."
Senior economist at realestate.com.au
"Higher mortgage costs will continue to weigh on household spending and work to slow economic growth, although a reasonably resilient labour market and growing incomes continue to provide an important buffer. For the housing market, another rate rise will lengthen the downturn already underway. Home prices nationally have declined for seven straight months, and are down 4.3% from peak. Further increases in mortgage rates will reduce borrowing capacities again for prospective buyers, adding to the downward pressure on home prices. However, the downturn, while brisk, remains an orderly adjustment driven by rising rates and affordability pressures, rather than a distressed housing correction. In the near-term, higher mortgage rates and very challenging housing affordability will continue to weigh on home prices; over the longer-term, structural undersupply of housing remains a long-term support for prices.”
"The pressure on household budgets, mortgage holders and consumer confidence continues to grow. For many Australians, a rate rise isn’t simply another adjustment to their repayments. It's another squeeze on already stretched household finances, discretionary spending and their ability to plan for the future. For finance brokers, it reinforces just how important our industry has become. Brokers are often the first point of contact when consumers need guidance, reassurance and options. Whether it's reviewing existing lending arrangements, refinancing, restructuring or simply helping clients understand their position, the value of good advice and genuine relationships has never been greater. But we also need to recognise the pressure this places on brokers and their businesses. Navigating changing lender policies, tighter serviceability requirements, reduced borrowing capacity, and increasingly cautious consumers requires resilience, adaptability and strong business foundations."
Chief executive officer of Mortgage Choice
"Although disappointing news for mortgage holders, the decision by the RBA to raise the cash rate is unsurprising. This rate hike could add up to nearly $98 a month to repayments on a $600,000 variable-rate mortgage. On top of the September hike, that could be almost $180 per month extra in mortgage repayments. My advice to mortgage holders is that you should speak to your mortgage broker to see if your home loan is still competitive."
Asia head of rates and FX strategy at J.P. Morgan private bank
"The property market downturn and sharp deterioration in consumer sentiment, following both monetary and fiscal tightening earlier this year, constrain the room for further tightening. Against this backdrop, today’s hike is likely to mark the final one of the cycle. If near-term inflation pressures ultimately force the RBA to hike again, we think this would only increase the likelihood of a sharper slowdown and bring forward the case for rate cuts at some point in 2027.
There are several dovish signals beneath the headline hike. The decision was 6-3, with the hold camp pointing to falling house prices and rising unemployment. Governor Bullock also emphasized that the impact of the last couple of hikes 'haven’t even started to flow through yet,' which we think suggests a preference to pause and assess the cumulative impact of tightening."
Head of Australian economics at Commonwealth Bank of Australia (CBA)
"The [RBA] governor noted in the press conference those [board members] who voted to hold the cash rate steady weighted the downside risks to growth, housing, labour market greater than the upside risks to inflation. The argument also centred on waiting for more information given the rate hikes already delivered and the lags of monetary policy. But clearly there are some members who are worried that the breaking point of the economy is getting closer. This is a surprise given the discussion last meeting of inflation being the board’s top priority. The post meeting statement dropped the recently used line of 'the board will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed,' and replaced it with 'the board will continue to do what it considers necessary to bring inflation sustainably back to target.' We judge that the shift in language retains the same meaning. But after five rate hikes monetary policy is better placed to watch the flow of data from now. But the willingness to hike again is retained.
Overall though, we think the RBA will remain on edge as we enter 2027, but keep rates on hold. The slowdown in the economy through next year, led by the consumer and the resultant lift in the unemployment rate should see inflation moderate from here and return closer to target in late 2027. We expect this additional rate hike to add to the slowdown in growth and gradually bring inflation back to target. We continue to pencil in two rate cuts in late 2027, in August and November, which would bring the cash rate down to 4.35%."
"Brokers are telling us the market has absorbed a lot of tightening already, and another rise will add to that pressure. The bigger change is in what borrowers are doing. Refinances now make up around one in three deals, up from roughly one in four a year ago, while investor deals have fallen to just over one in four. Average debt-to-income on winning deals is about 7% lower than last year. A rise to 4.85% is likely to accelerate the refinance wave as borrowers chase sharper pricing, push investors further to the sidelines and tighten borrowing capacity. Purchase activity is unlikely to turn until the market is confident the tightening cycle has peaked."
