The 2026 Rate Reversal: How Three Hikes Undid a Year of Cuts
ADS Team
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August 26, 2026
16 days ago
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In short: After easing through 2025, the RBA raised the cash rate three times in 2026 - in February, March and May - taking it to 4.35%. The trigger was headline inflation re-accelerating to about 4.6% in the March quarter, well outside the 2-3% target band.
Key takeaways
- Three hikes in 2026 took the cash rate to 4.35%.
- Inflation peaked at 4.6% over the year to March 2026 and has eased to 3.5% to July.
- The 0.75 points adds roughly $373/month to a $750,000 loan.
- Households that banked the 2025 cuts absorbed the reversal without a budget change.
What happened and why
The 2025 easing cycle reflected inflation moving back toward target. When headline inflation re-accelerated to around 4.6% in the March quarter 2026, the Board's reaction function pointed the other way - and because policy operates with a 12-18 month lag, waiting for confirmation would have meant acting late.
The cost, by loan size
| Loan | Extra per month | Extra per year |
|---|---|---|
| $500,000 | +$249 | +$2,988 |
| $750,000 | +$373 | +$4,481 |
| $1,000,000 | +$498 | +$5,975 |
Who handled it well
Borrowers who kept repayments at their 2024 level through the 2025 cuts entered 2026 with a buffer already built and an offset balance accumulated. For them the hikes changed the interest split, not the household budget.
That is the single most transferable lesson from this cycle: when a cut arrives, leave the repayment where it is.
Frequently asked questions
Will rates rise further?
That depends on the inflation forecast rather than on current inflation. The Board acts on where it expects inflation to be in 12-18 months. Watch quarterly CPI and the labour market.
Should I fix now?
Fixed rates already embed market expectations, so fixing after a rise is not automatically a bargain. Fix if a certain repayment has value to you, not to beat the market.
What if I cannot absorb another rise?
Reprice with your lender first, then look at term extension or a split. If repayments are already difficult, contact hardship before missing a payment.
Related reading
- Cash Rate at 4.35%: What It Costs the Average Australian Mortgage
- How the RBA Actually Sets the Cash Rate: The Reaction Function
- Stress-Testing Your Own Budget at +3%
Sources
- Cash rate target and Board decisions — Reserve Bank of Australia
- Consumer Price Index, March quarter 2026 — Australian Bureau of Statistics
Rates checked as at 2 September 2026. Interest rates, lender policies and government schemes change frequently. Figures in this article are illustrative and were accurate at the date shown.
General advice warning: This article contains general information only. It does not take into account your objectives, financial situation or needs, and it is not personal credit or financial advice. Consider whether it is appropriate for you and seek advice from a licensed credit representative before acting.
Any interest rate shown is an example only and is not an offer of credit. Where a rate is quoted, the applicable comparison rate is available from the relevant lender and should be considered alongside it.
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