The RBA increased the cash rate to 4.35% at its May 2026 meeting, marking a third consecutive rise
The cash rate target has returned to its February 2025 level, prior to last year’s rate-cutting cycle
Inflation remains above the RBA’s 2-3% target band, keeping pressure on interest rate decisions
Borrowers could see higher repayments and reduced borrowing power following this increase
The Reserve Bank of Australia has increased the cash rate to 4.35% at its May 2026 meeting, marking a third consecutive rise this year.
The decision reflects the Bank’s ongoing effort to bring inflation back within its 2-3% target band, while maintaining stability in the broader economy.
Although inflation has eased from earlier peaks, price pressures remain above target, meaning policymakers continue to monitor incoming economic data closely.
With multiple rate increases already delivered in 2026, many households are beginning to feel the impact through higher repayments and tighter budgets.
Why did the RBA raise rates in May?
Inflation remains elevated: CPI remains above the RBA’s 2-3% target band.
Growth steady: Economic activity has remained relatively resilient despite higher rates.
Labour market resilient: Employment conditions remain stable, supporting wage growth and spending.
Inflation risks remain: Policymakers are seeking further progress in reducing price pressures across the economy.
What a rate rise could mean for your repayments
If the latest rate rise is passed on in full, some borrowers may see their monthly repayments increase depending on their loan size and lender.
With three consecutive increases in 2026, the cumulative effect may be more noticeable.
For example, under a simplified scenario:
Example loan | Estimated monthly increase | Estimated annual increase |
|---|---|---|
$700,000 loan over 30 years | ~$336 | ~$4,028 |
Even relatively small changes in interest rates can affect repayments and borrowing capacity. Reviewing your home loan could help ensure your rate remains competitive.
AMP’s Head of Investment Strategy and Chief Economist, Shane Oliver, noted the broader impact on households:
“For existing borrowers, that means more mortgage stress and less flexibility in household budgets.”
Even small increases in interest rates can reduce borrowing capacity because lenders assess borrowers at higher repayment levels. Across three consecutive increases, borrowing power may be reduced significantly.
In a simplified scenario, a cumulative 0.75% increase could reduce borrowing capacity by approximately:
$42,000 to $56,000 on a $700,000 borrowing capacity
Actual outcomes will vary depending on income, expenses and lender policy.
What a rate rise could mean for you
Interest rate increases can affect borrowers differently depending on where they are on their property journey. Here are a few things different borrowers may want to consider.
Borrower type | What a rate rise could mean |
|---|---|
First home buyers | • Recalculate your borrowing power: Higher rates may reduce how much you can borrow |
Investors | • Review rental yields and cash flow against higher borrowing costs |
Refinancers | • Check whether your lender passes on the rate rise in full and when it takes effect |
Alya Manji from Aussie Hurstville said many borrowers are already feeling the pressure of rising rates:
“The biggest impact rate rises have is on borrowing capacity. As a rough guide, for every 0.25% increase, borrowing capacity can drop by around $25,000.”
While rates have increased, reviewing your loan or borrowing position may help you stay prepared for further changes.
Why it may still be worth reviewing your loan
A rate rise doesn’t necessarily mean your current loan is the most competitive available.
Many borrowers remain with lenders who do not always adjust rates at the same pace as the broader market. Reviewing your loan may help identify opportunities to improve your rate or loan features.
Over time, some borrowers may find they are paying more than necessary compared to newer offers in the market.
What borrowers could consider next
If you’ve been thinking about reviewing your home loan, a rate rise may be a good time to reassess where you stand.
An Aussie Broker can:
Check whether your current rate is still competitive
Compare options across 25+ lenders**
See whether refinancing could help reduce your repayments or improve your loan features
The outlook from here
With inflation still above the 2–3% target band, policymakers are continuing to monitor price pressures and broader economic conditions. Future interest rate decisions will likely depend on how inflation, wages, and economic activity evolve in the months ahead.
For borrowers, this may mean reviewing and comparing loan options is worth considering rather than waiting for the next RBA move.
Stay on top of your loan
Interest rates can move quickly, and different lenders may respond differently to changes in the cash rate.
Reviewing your home loan regularly may help ensure your loan still suits your needs as conditions change.