Why Rates Rose When Everyone Expected Cuts (And What Borrowers Should Do Now)

Update, October 2026: The RBA lifted the cash rate 0.25 percentage points to 4.60% on 29 September 2026, its fourth rise this year and the highest level since late 2011. The next decision is due on 3 November. Sources: RBA; Canstar.

If you budgeted around the 3.6% cash rate that applied through late 2025, you were following the consensus. Most forecasters expected the RBA’s next move to be down, not up. Instead, the Reserve Bank raised the cash rate three times in the first half of 2026 — in February, March, and May — held it at 4.35% through the June and August meetings, then lifted it to 4.60% on 29 September, its fourth rise of the year. The next decision is on 3 November.

If your repayments have crept up four times this year while you were waiting for relief, you’re not imagining it, and you’re not alone. Here’s what actually happened, why, and what’s worth doing about it before the November decision.

Why the RBA Raised Instead of Cutting

The short version: inflation didn’t cooperate. Headline inflation picked up through the second half of 2025, and the Bank’s own analysis found that some of that increase reflected genuine capacity pressure in the economy, not just temporary noise. Trimmed mean inflation — the measure the RBA actually targets — has stayed elevated and largely unchanged since the March quarter, sitting well above the 2–3% target band.

A few specific pressures kept showing up in the RBA’s public statements through the year:

• The Middle East conflict pushed oil and related commodity prices higher, and while the pass-through to local inflation was smaller than initially feared, it hasn’t fully unwound.
• The global AI investment boom has kept demand resilient in ways that offset some of the intended slowing effect of higher rates.
• Weak productivity growth means the economy can’t absorb wage and cost pressures as easily as it could in a higher-productivity environment, so the same nominal pressures translate to more inflation than they otherwise would.

Deputy Governor Andrew Hauser said plainly in an ABC 7.30 interview on 8 September that the RBA would raise rates further if these upside risks materialised. It wasn’t a throwaway line: three weeks later the Board lifted the cash rate to 4.60%.

Four Small Hikes Add Up to a Big Repayment Change

Every rate rise this year added to monthly repayments rather than easing them. If you’re on a variable rate and haven’t sat down with the actual numbers since May, it’s worth doing now rather than after the November meeting. Four 0.25% moves compound — the difference between your repayment at the start of 2026 and now is larger than any single rise might suggest, and it’s easy to lose track of the cumulative effect when it happens in stages rather than one jump. Canstar estimates the four rises in 2026 have added about $454 a month to repayments on a $750,000 loan.

This is genuinely one of the more disorienting rate environments I’ve seen in three decades of doing this. Most cycles have a clear direction people can plan around. This one reversed on people mid-plan — and if your budget assumed relief that never came, that’s not a failure of planning, it’s a forecast that didn’t hold.

Where the Forecasts Actually Stand

Economists are split heading into November, which is worth knowing because it means nobody has a confident answer — including, to some extent, the RBA itself. A Finder survey around the August decision found 44% of economists still expecting at least one more rate rise before the end of the year. The major banks’ own forecasts diverge on timing and magnitude for when cuts might eventually begin.

What that split means practically: if you’re deciding between fixed and variable right now, you’re not choosing based on a consensus forecast, because there isn’t one. You’re choosing based on your own tolerance for another possible rise versus the certainty of locking in today’s rate.

What to Actually Do About It

A few things worth doing before the next decision, rather than after:

Get your actual numbers in front of you

Not an estimate — your actual current repayment versus what it was in January. Most people underestimate the cumulative effect of staged rises because each individual increase feels manageable on its own.

Talk to your lender before you’re behind, not after

If four rate rises have put real pressure on your budget, the conversation to have is with your lender directly, before a missed payment rather than after one. Options like restructuring, extending a loan term, or moving to interest-only for a defined period are genuinely easier to arrange proactively than reactively, and lenders would generally rather work with you early than manage a default later.

Don’t assume the fix/variable calculus is the same as it was two years ago

The case for fixing looked very different during a cutting cycle than it does now, with genuine uncertainty about whether the next move is up or down. Whatever you decide, decide it based on the current split forecast, not on what made sense when everyone assumed cuts were coming.

Review before the next decision, not after

Whatever the RBA decides on 3 November, you’ll be in a stronger position having already looked at your numbers than scrambling to react afterwards. If another hike does land, the households who’ve already reviewed their position will absorb it far more easily than those who haven’t looked since May.

The Bottom Line

Nobody — not the banks, not most economists, and not the RBA itself in its own public statements — is confidently certain what happens next. That uncertainty is exactly why this is the moment to get your own numbers straight rather than wait for clarity that might not arrive by November. The households who come through this cycle in the best shape aren’t the ones who guessed the RBA’s next move correctly; they’re the ones who reviewed their position early enough to have options.

Tax Changes and Lender Policy: What Else Is Moving

Rates are not the only thing shifting the property market this spring. The May 2026 Budget changes, since passed by Parliament, limit negative gearing to newly built homes. They also replace the 50% capital gains tax discount with indexation from 1 July 2027. Properties owned before Budget night (12 May 2026) keep negative gearing. If you are weighing an established investment property now, the after-tax return looks different. The 2026 Budget tax changes are worth reading, and so is a chat with your accountant.

You can see the effect in the lending data. New home loan numbers fell 5.4% in the June quarter, led by an 8.6% drop in investor lending (ABS). First home buyer lending fell 2.9%. If you are a first home buyer, less investor competition for existing homes is not nothing.

Lender policy is the other thing to check. Some banks have quietly introduced more lenient policies to compete for first home buyer business. Two examples:

• Allowing notional rent from a spare bedroom to count toward your income.
• Excluding HECS repayments (compulsory student-loan repayments taken from your pay) from serviceability calculations, if the debt would clear within the loan’s first year.

Policies differ between lenders and change often. Ask your lender or broker what applies today, and get pre-approved rather than assuming today’s numbers will still apply in three months.

Related Reading

• What an RBA Rate Move Does to Your Repayments — what the 29 September rise means for clients and lending teams
• Canberra Property Market 2026: Rate Rises, Not Cuts, Reshape the Outlook — how this same rate environment is playing out in the Canberra market specifically
• What a Lender Actually Sees When They Assess Your Budget — rebuilding your budget around your actual current repayments
• How to Buy a House in Australia: A First-Timer’s Step-by-Step Guide — if you’re weighing whether to buy in this rate environment at all

Written by Michael Wignall, who’s spent 30+ years in banking and home lending across the ACT, Illawarra, and Riverina regions of NSW.

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Written by Michael Wignall, Lending Area Manager with 30+ years in banking and home lending across the ACT, Illawarra, and Riverina. Got a question or an idea for a post? Get in touch.