RBA lifts cash rate to 4.35% — third hike in 2026

The RBA's third rate rise this year returns the cash rate to 4.35%, with the board warning inflation risks remain tilted to the upside.

The Reserve Bank of Australia voted eight to one on 5 May 2026 to raise the official cash rate by 25 basis points to 4.35%. The sole dissenter voted to hold at 4.10%. This is the third increase in 2026, returning the cash rate to where it was before last year's cuts.

For variable-rate borrowers, it means a third increase in repayments this year. For the broader economy, it signals the RBA is not yet done tightening, even as household budgets stretch thin.

Why the Board Moved Again

Inflation is running well above the RBA's 2–3% target band, and the conflict in the Middle East has complicated the picture considerably. Headline consumer price index inflation accelerated to 4.6% year-on-year in March — up from 3.7% in February — driven largely by higher fuel costs. Strip out automotive fuel and headline inflation slowed slightly to 3.9% year-on-year. But the RBA's preferred measure, trimmed mean inflation, has sat stubbornly at 3.3% since December last year, well above target and not moving.

What concerns the board most is the risk of second-round price effects. Early signs suggest firms facing cost pressures are looking to pass them on to consumers, and short-term inflation expectations have risen. RBA Governor Michele Bullock was direct at the post-decision press conference: "Inflation in Australia was already too high before the recent conflict in the Middle East began. The conflict adds to global and domestic inflation." She acknowledged the compounding pain for borrowers — higher repayments on top of a cost-of-living squeeze — but argued the cost of inaction would be higher. "We must get on top of inflation now so that it doesn't get away from us," she said.

The board's baseline forecast assumes the conflict is resolved relatively soon and fuel prices decline. Under that scenario, underlying inflation would peak higher than previously expected before gradually falling as demand slows. Governor Bullock said the RBA anticipates inflation will likely peak in June, provided oil prices start to come down. Given the conflict remains unresolved, that assumption carries real uncertainty.

The official statement confirmed the board "will do what it considers necessary" to achieve its price stability mandate. That is not a promise to hold rates steady.

What It Means for Your Repayments

A 25-basis-point rise adds approximately $80 per month to repayments on a $500,000 owner-occupier variable home loan on principal and interest terms. For borrowers closer to the December 2025 average new mortgage size of $736,000, the full pass-through adds around $119 per month — or about $55 per fortnight — to minimum repayments.

Major banks have already confirmed they will pass on the full 0.25% increase, with most changes effective 15 May 2026. This gives you a short window to act. If your rate hasn't been reviewed in the past 12 months, now is the time. Use our [refinance savings calculator](/calculators/refinance-savings) to see whether switching products or lenders would lower your repayments before the increase hits.

Refinance demand has been rising. Industry data shows that refinance has been growing as a share of total mortgage submissions over the past two months. Borrowers are also increasingly exploring fixed-rate options — 6% of April submissions through mortgage brokers included a fixed-rate component, double the 3% recorded a year earlier. Seeking certainty makes sense in a rising-rate environment, though fixed rates come with trade-offs that are worth modelling carefully for your circumstances.

MFAA chief executive Anja Pannek described today's decision as "difficult news for borrowers already managing higher repayments and broader cost-of-living pressures," urging borrowers to seek guidance early. "Mortgage brokers can assist borrowers to compare the market, negotiate with their current lender and consider whether their loan structure still suits their circumstances," she said. Connective executive director Mark Haron echoed that view, advising borrowers to revisit pre-approvals promptly and consider whether repricing or refinancing is appropriate.

Use our [borrowing power calculator](/calculators/borrowing-power) to see how today's rate change affects your serviceability, particularly if you are planning to purchase or upgrade in the near term.

Is the Rate Cycle Over?

Not necessarily. The RBA's statement noted that "having raised the cash rate three times, monetary policy is well placed to respond to developments" — phrasing that leaves the door open for further hikes. AMP chief economist Shane Oliver has forecast another increase in August, though he acknowledges many variables are in play. Interbank markets have at least one more hike fully priced in, with a second seen as a high probability by January 2027.

The RBA's own economic growth forecast sits at a low 1.3%. That is a fragile backdrop in which to sustain restrictive monetary policy indefinitely, but with trimmed mean inflation stuck above target and the global energy outlook uncertain, the board is unlikely to ease until it has clear evidence inflation is on a sustained downward path.

[Compare home loan rates today](/home-loans/cheapest) to understand whether your current lender's offer is still competitive — and to stress-test your budget if rates were to move once or twice more from here.

Read the full decision statement from [the RBA](https://www.rba.gov.au/media-releases/2026/mr-26-12.html).