6 May 2026

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The RBA Board voted 8 to 1 yesterday to lift the cash rate by 25 basis points to 4.35%. It's the third consecutive hike of 2026 and brings the rate to its highest level since late 2011. The decision was widely anticipated (30 of 33 economists surveyed had forecast a hike) but the more important detail is what came in the accompanying statement and forecasts.

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For variable rate borrowers, the practical effect lands within days. Here's what was actually decided, what the RBA is signalling about what comes next, and what's worth doing this week.

 

The decision in detail

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The Board lifted the cash rate from 4.10% to 4.35%, with one member voting against. The RBA's statement confirmed inflation is expected to remain above target for some time, with risks tilted to the upside.

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The most striking detail came in the updated forecasts. The RBA now expects headline inflation to peak at 4.8% in mid 2026, with underlying inflation staying above 3% until mid 2027, and only returning to the 2.5% midpoint of the target band by mid 2028. That's roughly two years later than the central bank was expecting in February. To get there, the RBA's own forecasts assume the cash rate rises further to 4.70% by the end of 2026, implying at least one more hike still to come.

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Westpac, the only major bank that had been forecasting further hikes, looks increasingly likely to be proven right. The CAMA RBA Shadow Board this week put a 70% probability on rates needing to climb further over the next six months.

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The statement also included a subtle softening of forward guidance. The Board noted that "having raised the cash rate three times, monetary policy is well placed to respond to developments" rather than explicitly signalling more tightening. That's a shift toward a data dependent posture, which means the next decision (15 to 16 June) will hinge heavily on the May CPI data and any easing in fuel prices following the 1 April excise cut.

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What it costs you in dollars

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Lenders are required to pass on RBA movements to variable rate customers, and most do so within a week. Macquarie Bank and uBank announced their increases within hours of yesterday's decision, both effective from 22 May 2026. Other major banks are expected to follow within the next few business days.

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Here's the practical impact on monthly repayments based on a 25 year owner occupier loan, assuming the full 0.25% is passed on.

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A $500,000 loan: approximately $76 more per month.

A $700,000 loan: approximately $107 more per month.

A $1 million loan: approximately $161 more per month.

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Cumulative impact matters more than the single hike. A borrower with a $700,000 loan is now paying around $295 more per month than they were at the start of 2026, which works out to roughly $3,540 more per year. If Westpac and the RBA's own forecasts are correct and another hike lands later this year, that figure climbs further.

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Borrowing capacity has also taken another hit. Each 0.25% rate movement trims around $30,000 to $40,000 from the borrowing capacity of a typical owner occupier on $1 million in lending. Cumulatively, the three hikes this year have reduced borrowing capacity by roughly $90,000 to $120,000 for the same applicant, all else equal.

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What we're seeing in the market

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A few observations from the last 48 hours and the broader 2026 picture.

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Average residential rates are now sitting at 5.7% to 6.2% for owner occupiers depending on lender and borrower profile. Investment loans typically run 0.20% to 0.40% above that. After yesterday's pass through, the floor for sharp variable rates moves to roughly 5.95%, with the cheapest deals in the market reserved for borrowers with strong equity, clean files, and the willingness to switch lenders.

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Fixed rate pricing has been creeping up for weeks in anticipation of yesterday's decision. Most lenders had already priced in the May hike before it landed, which means there isn't a large additional fixed rate increase coming in the immediate term. That said, fixed offers from six months ago are no longer in the market, and the most attractive fixed terms now sit in the high 5% to mid 6% range depending on length.

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Refinance activity is running strong. PEXA data shows refinancing volumes have stayed elevated through 2026 even as rates have climbed, which tells you that the loyalty tax (the gap between what existing customers pay and what new customers are offered) is wide enough to make switching worthwhile even in a rising environment. We're seeing client refinances saving $200 to $500 per month on standard owner occupier loans, which more than offsets yesterday's hike for those who act.

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Cotality is flagging that housing demand is moderating further. Buyer sentiment was already subdued before yesterday, and a third consecutive rate hike is unlikely to reverse that. For prospective buyers, the trade off is clearer: borrowing capacity is tighter, but auction conditions are more favourable than they've been in 18 months.

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What to actually do this week

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A short, practical list. The borrowers who come through this cycle in the best shape are the ones acting in the next few weeks, not waiting another quarter.

Confirm when your lender is passing on the change. Most lenders announce within 24 to 72 hours of an RBA decision and apply the new rate within one to two weeks. Watch your email and your lender's website. Knowing the exact date the change hits your direct debit is the first step to managing it.

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Check your current rate against the market. If you haven't reviewed your interest rate in the last 12 to 18 months, this is genuinely the week. The loyalty tax gap on most lenders is currently 30 to 60 basis points, which is the equivalent of one to two RBA hikes already absorbed simply by switching to a sharper deal. We've seen plenty of refinances in the last month save clients $300 to $500 per month on standard owner occupier loans.

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Run the numbers on another hike. Don't just model your repayments at 4.35%. Run them at 4.60% as well, in line with what Westpac and the RBA's own forecasts are pointing to. If those numbers feel uncomfortable, the time to do something about it is now, while you have options.

Reconsider fixing or splitting. Fixed rate pricing has already absorbed most of yesterday's move, which means the case for fixing isn't as compromised as it would be after a surprise hike. A split structure (part fixed, part variable) can give you certainty on a portion of the loan without locking yourself out of any future cuts, and is worth a proper conversation in the current environment.

Review your loan structure, not just your rate. Loans set up in 2021 or 2022 were built for a different rate world. Things like the term, the repayment type (principal and interest versus interest only), the offset facility, and any split arrangements should be looked at with fresh eyes. Small structural fixes can deliver meaningful improvements alongside (or instead of) a rate change.

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The bigger picture

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Yesterday's decision wasn't a surprise. The bigger story is that the cash rate is now expected to climb further before the cycle is done, and inflation isn't expected to return to target until 2028.

Borrowers who position themselves now (with the right rate, the right structure, and a realistic view of where their cashflow needs to be over the next 18 months) tend to come through this kind of cycle in much better shape than borrowers who wait until they're already under pressure. The next RBA meeting is 15 to 16 June, and the May CPI release in late May will heavily influence whether another hike lands then or in August.

If you'd like a free review of where your loan sits against the current market, get in touch with the Claremont team. We'll run the numbers honestly, look at the structure, and let you know whether there's something worth doing before the next decision lands.