RBA Rate Decisions and Your Mortgage

The Reserve Bank of Australia's cash rate directly affects what you pay on a variable rate home loan. Here's how it works, what's happened in 2026, and what to expect next.

How the Cash Rate Affects Your Repayments

When the RBA changes the cash rate, banks typically pass the change through to variable rate mortgage holders within days to weeks. A 0.25% increase on a $600,000 variable rate loan adds approximately $95-100 to monthly repayments. The pass-through isn't always exact — some lenders absorb part of the change, others pass on more.

Fixed rate loans are not directly affected by cash rate changes during the fixed period. However, the rates offered on new fixed loans reflect market expectations of future cash rate movements — so fixed rates often move ahead of actual RBA decisions.

The 2026 Rate Cycle

After cutting rates three times in 2025 (bringing the cash rate down to 3.60%), the RBA reversed course in early 2026:

Date	Decision	Cash Rate	Driver
Feb 2025	Cut 0.25%	3.85%	Inflation moderating
May 2025	Cut 0.25%	3.60%	Inflation at 1.9% (June)
Aug 2025	Cut 0.25%	3.35% → 3.60%	Growth slowing
Feb 2026	Hike 0.25%	3.85%	Inflation back to 3.4%+
Mar 2026	Hike 0.25%	4.10%	Middle East energy shock, tight labour market
May 2026	TBC	4.35%?	Next decision 5 May 2026

The March 2026 decision was notably close — a 5-4 split vote, with four board members preferring to hold. This suggests the Board is divided on how aggressively to respond, and future decisions are genuinely uncertain.

What's Driving the Hikes?

Two primary factors are pushing rates up in 2026. First, the Middle East conflict has disrupted global oil supplies, sending energy prices sharply higher and pushing both actual inflation and inflation expectations up. Second, Australia's labour market remains tight with low unemployment and persistent wage growth, keeping domestic demand stronger than the RBA would like.

Annual CPI inflation is currently running at 3.7% (February 2026 data), well above the RBA's 2-3% target band. The RBA doesn't expect inflation to return to the middle of its target until 2028.

What Should You Do?

The most practical steps for mortgage holders in a rising rate environment:

• Budget for further hikes. Interest rate futures markets have priced in the possibility of rates reaching 4.85% by late 2026. Even if that doesn't eventuate, it's prudent to stress-test your budget at 1% above today's rate.
• Check your rate. Many borrowers are paying more than they need to. Use our Repayment Calculator to compare scenarios, and call your lender to request a rate review.
• Consider your fixed/variable mix. Read our Fixed vs Variable guide for the current trade-offs.
• Build buffer. If possible, build a 3-month repayment buffer in your offset or redraw account to absorb further increases.

For ongoing RBA meeting coverage and updates, see SortedAus, which tracks every RBA decision and its practical implications.