The boardroom was split. For the first time since July 2025, Reserve Bank governors couldn’t reach consensus on where interest rates should go. Five voted to raise. Four voted to hold. The five won.
On March 17, 2026, the RBA lifted the cash rate by 25 basis points to 4.10% — the second consecutive hike after February’s increase to 3.85%. After three cuts in 2025 that briefly offered borrowers relief, the pendulum has swung back.
The vote split tells the story: this isn’t a clear-cut decision. The economy is giving mixed signals, and reasonable people disagree on the path forward.
What Triggered the U-Turn
The rate cuts of 2025 — in February, May, and August — came as inflation appeared to be cooling. Borrowers exhaled. Property prices in Sydney and Melbourne stabilised. The narrative was “worst is over.”
Then inflation picked up again in the second half of 2025. The RBA’s February minutes didn’t mince words: inflation was “too high.” The Middle East conflict pushed fuel prices sharply higher. Capacity pressures, dormant for months, resurfaced.
The February hike was seen as cautious. March’s continuation confirms this isn’t a one-off correction — it’s a new trajectory.
What the banks are saying
All four major banks — ANZ, CBA, NAB, and Westpac — predict another 25 basis point rise in May. That would push the cash rate to 4.35%, the highest since late 2024.
CBA economists noted the RBA’s board “won’t have enough evidence by May to show that February’s hike is sufficiently slowing demand.” Translation: expect this to continue.
The Dollar Impact on Your Mortgage
For the average Australian mortgage holder, numbers matter more than policy statements. Here’s the reality:
| Loan Balance | Monthly Increase (Feb) | Monthly Increase (Mar) | Total 2026 Impact |
|---|---|---|---|
| $400,000 | +$60 | +$60 | +$120/month |
| $600,000 | +$90 | +$90 | +$180/month |
| $800,000 | +$120 | +$120 | +$240/month |
| $1,000,000 | +$150 | +$150 | +$300/month |
These figures assume a 25-year loan term and standard variable rate. Your actual increase depends on your lender’s response and loan structure.
“For a household with a $600,000 mortgage, the two 2026 hikes so far add roughly $180 per month to repayments. If May brings another rise, that’s $270 more than you were paying in January.”
Mortgage stress is rising
Roy Morgan’s latest data shows mortgage stress has climbed to 24.7% of holders — up 0.8 percentage points from January. If rates rise again in May, projections suggest 28.9% of mortgage holders (around 1.4 million households) could be classified as “at risk.”
A Tale of Two Markets
The property market is splitting along geographic lines. Sydney and Melbourne are flatlining while mid-sized capitals continue to push higher.
Sydney & Melbourne
Property values rose 6.4% over the past year but have been essentially flat since November 2025. The city’s median dwelling sits at $1.15 million, making it particularly sensitive to rate movements. Every $50 increase in monthly repayments prices out another segment of potential buyers.
Similar story in Melbourne. The median house price of $977,579 represents years of growth, but momentum has stalled. Melbourne values dropped 0.5% since the rate hiking cycle began in May 2022 and remain 1% below their March 2022 peak.
Perth, Brisbane, Adelaide
The outperformers. These markets continue to record growth exceeding 1% month-on-month. Relative affordability, interstate migration, and mining-sector strength have insulated them from the rate-driven slowdown affecting the eastern seaboard.
What Should You Do Now
Rate hikes create urgency, but urgency shouldn’t override strategy. Here’s how different groups should approach the next few months:
If you’re a current mortgage holder
Reassess your rate. Many borrowers are still on rates negotiated 18-24 months ago. The market has moved. A quick conversation with your broker could reveal better options — even in a rising rate environment.
Build a buffer. If you can afford to maintain your current repayment level despite rate rises, let the extra flow into your offset or redraw. Financial cushion matters when forecasters are uncertain.
Consider fixing — carefully. Fixed rates have risen in anticipation of further hikes. But if your risk tolerance is low and cash flow is tight, the certainty of a fixed rate may be worth the premium.
If you’re a first home buyer
Your borrowing power has dropped. Each rate rise reduces the amount banks will lend you. Get a fresh pre-approval if yours is more than 60 days old.
State grants still apply. NSW’s $10,000 First Home Owner Grant and stamp duty exemptions for properties under $800,000 remain in place. These offsets haven’t changed with rates.
Sydney and Melbourne’s pause could be your entry. Flat prices mean less competition and more negotiation leverage. Properties that would have sold in days are now sitting. Use that.
If you’re considering refinancing
Now, not later. If you’re on a high rate and haven’t reviewed your loan in the past 12 months, you’re likely paying more than you need to. The gap between the best and worst rates in the market often exceeds 1%.
Factor in fixed vs variable. A variable rate exposes you to future hikes but gives you offset access and flexibility. A fixed rate gives certainty but locks you in.
The RBA’s next meeting is May 5, 2026 and it is expected that global macro environment will continue to be volatile with further rate rises on the horizon.
Need help navigating the rate environment? Talk to our team about your options.