RBA hikes the cash rate: Is the worst yet to come?
Inflation is still too high, thanks to housing costs and fuel prices.
Key takeaways
- The RBA has increased the cash rate to 4.35%, an increase of 25 basis points.
- Most Australian borrowers will now see their home loan interest rates increase by the same amount.
- What's next: The worst is not over. With inflation so high, more cash rate hikes this year seem inevitable.
The Reserve Bank of Australia (RBA) decided to raise the official cash rate to 4.35% at its meeting today.
Most borrowers can expect their lender to increase their home loan rates by 25 basis points (0.25%) in response.
74% of the experts Finder surveyed predicted today's decision. The cash rate is now back to its 2024 level. Before that, the last time the cash rate was this high was back in 2011.
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Just how high will the cash rate go?
"Higher fuel prices are adding to inflation and there are indications that this is likely to have second-round effects on prices for goods and services more broadly," said the RBA in its statement today.
50% of the economists Finder surveyed think the RBA will raise the cash rate again by August. A further 23% think it will do so in September.
Inflation is still too high. Last week's monthly consumer price index figures showed inflation had risen 4.6% in the last 12 months.
The RBA's target for inflation is between 2% and 3%. Housing costs and fuel prices are the main drivers of inflation.
By increasing the cash rate, the RBA hopes to drive consumer spending down by making borrowing more expensive.
Whether this works or not remains to be seen, but rate rises are expensive. Finder analysis shows that the average borrower paid $111 more a month after the March 2026 rate rise. Today's hike takes that to $229.
What should borrowers do now?
Lenders will start lifting variable rates in the coming days and weeks. If you have a variable rate home loan you can't really avoid this increase (fixed rate borrowers get some protection here).
A rate hike is a good time to:
- Start comparing home loan rates. See if any lenders are offering a better deal for new customers. What are the odds your current rate is the lowest in the market? Shop around and find a better rate if you can.
- Refinance (but talk to your current lender first). If you find a better deal then refinancing is a great way to lower your repayments. But you can also talk to your current lender and see if they'll match the lower rate. It never hurts to ask.
Even though rates are rising, many lenders are offering home loan cashbacks to encourage borrowers to switch. A nice cashback could offset rising rates a bit.
Sources
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