Some countries are cutting rates. Why is the RBA still raising?

Key takeaways:

• Australian inflation stands out: Underlying inflation remains higher than comparable measures in the UK, Canada, New Zealand and the US.

• Local conditions matter: Overseas rate cuts do not require the RBA or Australian lenders to follow.

• Borrowers may be affected differently: The impact will depend on factors including loan balance, loan type, interest rate, income and expenses.

• Borrowing power could change: Buyers may need to update their figures if lenders increase rates or reassess their application.

• A loan review may help: Borrowers can check their current rate and options, although refinancing will not be suitable for everyone.

Australians looking overseas for signs of mortgage relief face a key difference at home: underlying inflation remains higher than comparable measures in the United Kingdom, Canada, New Zealand and the United States.

Against that backdrop, the Reserve Bank of Australia (RBA) lifted the cash rate by 0.25 percentage points to 4.60% on 29 September, its fourth increase of 2026.

The RBA raised the cash rate because inflation remains too high, with stronger-than-expected domestic price pressures and rising global energy costs increasing the risk that inflation stays above target.

AMP Bank chief economist Shane Oliver said Australia was not alone in facing renewed inflation concerns, but its underlying inflation challenge appeared more pronounced.

“The UK, Canada, New Zealand and the US have lower underlying rates of inflation than we do,” he said.

“It’s not as if we’re totally alone on this, but it does seem as if we’ve got a bit more of an inflation problem than other countries, which is obviously a concern to the Reserve Bank.

“It probably means they end up sounding a bit more aggressive than other countries do.”

Why Australia’s underlying inflation stands out

The Australian Bureau of Statistics reported that headline inflation was 3.5% in the year to July, while trimmed mean inflation remained at 3.6%.

Trimmed mean inflation removes some of the largest price rises and falls to provide an indication of underlying price pressures. Australia’s latest reading remains above the RBA’s 2% to 3% target range.

Selected official measures of core or underlying inflation were lower in the latest available releases. These figures provide context rather than a like-for-like ranking because the methods and reference periods differ.

Sources: ABS, RBNZ, UK Office for National Statistics, US Bureau of Labor Statistics and Bank of Canada. Measures and reference periods differ between countries and are not directly comparable.

Oliver said differences in domestic inflation and economic conditions mattered when comparing central-bank decisions.

“Some of these countries are in slightly different circumstances,” he said.

“Inflation might be coming from a lower base, and economic conditions have been a lot weaker in, say, New Zealand.”

The comparison does not mean Australia must have higher interest rates than every peer. It does help explain why the RBA’s decisions may differ from those made overseas.

Why Australian rates may follow a different path

Oliver said inflation had become more persistent across several economies after previously appearing to ease.

“These concerns about inflation are pretty much global,” he said.

“Inflation was coming down nicely, but in the last year or two it’s become stickier above target. That has necessitated a shift towards tighter monetary policies.

“More so in Australia, unfortunately, than in other countries, but other countries haven’t been immune to that.”

Independent economist Nicki Hutley said higher oil prices and renewed pressure on global supply chains had added to the challenge facing the RBA.

“Global supply chains mean more inflation, not less,” Hutley said.

Saul Eslake, also an independent economist, said persistent underlying inflation had reduced the RBA’s willingness to tolerate inflation above its target.

“It’s clear that inflation is persisting well above the Reserve Bank’s target,” Eslake said.

“Recent comments by Michele Bullock, Andrew Hauser and Sarah Hunter indicate that the Reserve Bank’s willingness to tolerate this above-target inflation has reduced.”

Each central bank responds to its own inflation, labour market, and economic conditions. That means an overseas rate cut does not require the RBA to follow.

Even when the RBA changes the cash rate, home loan rates do not necessarily move by the same amount or at the same time. Individual lenders consider factors including funding costs, competition, loan type and their own pricing decisions.

Aussie Forest Lake Broker Kit Johnson said borrowers should not assume the latest decision reveals what the RBA or individual lenders will do next.

“Lenders can still change their rates independently of the RBA,” he said.

Johnson encouraged buyers to keep their borrowing capacity up to date and consider whether they could comfortably manage their repayments if rates increased again.

“I wouldn’t want someone stretching themselves on the assumption that the next move will be a cut,” he said.

Hutley said there were also forces within the Australian economy that could help slow inflation, including cautious household spending.

“People are reluctant to spend,” she said.

“There are a fair few things at play. It’s not all one-sided in this equation. There are forces that are also acting to help bring inflation down.”

For borrowers, the latest increase reinforces the value of testing several repayment scenarios rather than relying on overseas decisions or predictions about the RBA’s next move.

What the rate rise may mean for mortgage holders

The impact will depend on the borrower’s loan balance, interest rate, remaining term, loan type, income and living expenses. Variable-rate borrowers may face higher repayments if their lender passes on the increase, while fixed-rate repayments will generally remain unchanged until the fixed term ends.

Eslake said higher repayments may leave affected households with less room for other expenses.

“It will put increased pressure on households with mortgages, which is about a third of all households,” he said.

“That means those households will have less money to spend on other things.”

Borrowers can check whether their lender has changed their rate, calculate the effect on repayments and review whether their household budget still has sufficient room.

An Aussie Broker can help you understand what may affect your repayments and explain options that may be available.

You might also be interested in: What to do if your mortgage repayments increase

What buyers and homeowners can do next

Australia’s different inflation and interest-rate path makes it important for borrowers to work from current figures rather than assume local rates will soon follow moves overseas.

For first-home buyers, that may mean checking whether the latest increase has affected their borrowing capacity or pre-approval before committing to a property.

“A pre-approval isn’t necessarily set in stone, so a rate rise can change a client’s borrowing capacity or the lender’s assessment,” said Aussie Woodvale Broker Dean Cokis.

You might also be interested in: When to revisit a home loan pre-approval

For existing homeowners, the rate rise may be a useful prompt to check their current interest rate and repayments. A loan review does not necessarily mean refinancing, and switching may not be suitable once fees, the remaining loan term and other trade-offs are considered.

An Aussie Broker can help buyers recalculate their borrowing power or help homeowners review whether their current loan still suits their circumstances.

Focus on what can be controlled

Australia’s inflation outlook may make the path to lower interest rates less straightforward than developments overseas suggest. However, the latest increase does not establish what the RBA or individual lenders will do next.

Borrowers can focus on what they can control: knowing their current rate, testing higher repayment scenarios, reviewing expenses and understanding how much they may be able to borrow comfortably.

An Aussie Broker can help borrowers review their current loan, compare available options and model what different interest-rate or borrowing scenarios could mean for their circumstances.