RBA Cash Rate Increased To 4.35%

Why Did The RBA Increase The Cash Rate In May 2026?

In its May meeting, the Reserve Bank of Australia (RBA) decided to increase the cash rate by 25 basis points to 4.35%. This move was driven by a renewed rise in inflation, stronger capacity pressures across the economy, and concerns that higher fuel and commodity prices could keep inflation above target for longer.

The RBA statement highlighted four key reasons:

1. Inflation Picked Up Again

Inflation rose materially in the second half of 2025, and newer data suggests part of that increase came from stronger capacity pressures in the economy.

The Board is concerned that inflation is not easing quickly enough. Short-term inflation expectations have also risen, which matters because if businesses and consumers start expecting prices to keep climbing, those expectations can feed into actual price rises.

2. Middle East Conflict Has Pushed Up Fuel And Commodity Prices

The ongoing conflict in the Middle East has led to sharply higher fuel and related commodity prices.

The RBA warned that these higher costs are already adding to inflation. The bigger concern is that fuel costs do not just affect petrol prices. They can flow through to transport, groceries, services and other everyday costs as businesses pass on higher expenses to customers.

3. Businesses Are Looking To Raise Prices

The RBA noted early signs that many firms facing cost pressures are preparing to increase prices for their goods and services.

This is a key concern because it suggests the inflation problem may become broader, not just limited to fuel and imported goods. If more businesses raise prices at the same time, inflation could stay above the RBA’s 2%–3% target range for longer.

4. The Risks To Inflation Are Still Tilted Upwards

The RBA said there is heightened uncertainty around both inflation and economic activity.

While its baseline forecast assumes the conflict is resolved soon and fuel prices decline, the Board also acknowledged that a longer or more severe conflict could push global energy prices even higher. That could lift near-term inflation and make it harder to bring inflation expectations back under control.

Because of these risks, the Board judged that increasing the cash rate was the right step. The decision was made by majority, with eight members voting to raise the cash rate to 4.35% and one member voting to leave it unchanged at 4.10%.

Our Experts Take On The Board's Decision

Here is what our experts say about the cash rate decision and what it means for borrowers.

A hike means borrowing power gets squeezed from every direction.

Income is hit by tax, debt repayments rise with the cash rate, living expenses rise with inflation, and the buffer rate banks add on top of the variable rate is around 3%.

When all four lines move at once, even a 25bp change can take a client from approved to rejected.

Sid Bajracharya, Mortgage Broker

For many clients, another 25bp is less about the immediate repayment increase and more about borrowing capacity and confidence.

I am currently working with a client who is already at their servicing limit. This additional increase could reduce their borrowing power enough to push them out of their preferred property range or delay their purchase altogether.

It shifts the conversation from ‘when to buy’ to ‘should we wait’.

Preeti Kowshik, Senior Mortgage Broker

For existing home loan pre-approval clients, their borrowing power will shrink by nearly $40,000 after each 0.25% RBA hike.

Some will have to look at less expensive property. The real estate market will be negatively impacted as well. The current Sydney auction clearance rate is already below 60%.

Sheng Ye , Mortgage Broker

What The Rate Hike Costs You

For every 25 basis point increase, a borrower on a $660,000 loan loses approximately $100 per month.

Three consecutive hikes have now added over $300 per month since the start of the year. This is not theoretical, it is hitting household budgets right now.

5 Things You Should Do Now

• 1. Recheck your borrowing power before making an offer, because a rate hike can reduce how much lenders are willing to approve.
• 2. Review your budget using the new repayment amount so you know exactly how much extra you’ll need to cover each month.
• 3. Avoid borrowing at your absolute limit so you have room for future rate rises, living costs and unexpected expenses.
• 4. Pay down or close unused debts where possible, because credit cards, personal loans and buy now, pay later limits can reduce borrowing power.
• 5.Speak to your broker before changing your property plans, as another lender or loan structure may still keep your goal within reach.

How The RBA Cash Rate Affects Interest Rates

Lenders add a margin to the official cash rate to determine the variable interest rate they offer to customers.

When the RBA raises the cash rate, lenders often increase their variable interest rates. This means your mortgage repayments go up.

When the RBA cuts the cash rate, lenders may lower interest rates. So, your repayments could go down. However, note that not all lenders pass on the full change.

If the cash rate is unchanged, your repayments usually stay the same. However, lenders can still change rates for other reasons.

Use our rate change calculator to find out what your repayments should look like whenever the cash rate changes.

Upcoming RBA Monetary Policy Board Meeting Calendar 2026

Source: rba.gov.au