RBA Hikes Cash Rate to 4.60% on September 29, Highest Since 2011

The Reserve Bank of Australia lifted its cash rate by 25 basis points to 4.60% on Tuesday, September 29, marking the fourth increase this year and the highest level since 2011. The move will add approximately $100 per month to mortgage payments on a $700,000 loan. The RBA cited elevated inflation, Middle East conflict impacts on energy prices, and AI-driven global demand as reasons for the hike, with financial markets now pricing a 60% chance of a sixth rate increase by mid-2027.

Why the RBA raised rates again

The Monetary Policy Board said inflation remained too high at 3.5% annually, stronger than expected despite a slight moderation from 3.8% the previous month. The broadening conflict in the Middle East has disrupted global oil supplies, pushing prices toward $2.40 per litre in Australia. AI-related demand is driving rapid growth in global technology prices, while Australian firms report cost pressures and are raising prices or planning to do so. The board stated that recent inflation outcomes were stronger than anticipated at its August meeting.

What this means for borrowers and the property market

Shane Oliver, AMP’s chief economist, warned that two or three more rate hikes would be “overkill” given the weakened economy and household finances. A further increase at the November meeting would push the cash rate to 4.85%, the highest since just before the 2008 financial crisis. Oliver cautioned that reaching 5.1% “is going to cause major problems for households with mortgages” and could trigger a 15-20% property price decline instead of the current 10% fall. Further rate hikes could devastate the property market without improving housing affordability, experts say.

Market expectations for future hikes

Financial markets are pricing in a 60% probability of a sixth rate increase by mid-2027, with analysts tipping a fifth hike on Melbourne Cup day in November. The RBA’s statement indicated it would continue tightening financial conditions if needed to bring inflation back to its 2-3% target range, which is not expected to occur for at least another 12 months. Governor Michele Bullock and senior officials have made increased media appearances warning that high demand is weighing on inflation and poor productivity is stalling economic growth. The RBA board stated it will do what is necessary to support a return of inflation to target, including further rate increases if needed.

A silver lining for first-time buyers

Tom Devitt, senior economist at Housing Industry Australia, noted that the national affordability index hit its lowest level in history at the end of June. While falling home values are devastating for existing owners, the decline makes it easier for first-time buyers to enter the market. However, Devitt had expected affordability to improve in the second half of 2026 and into 2027, a prediction now at risk if the RBA continues hiking rates as markets anticipate.

Final Thoughts

The RBA’s fourth rate hike of 2026 brings borrowing costs to a 15-year high, adding significant pressure on mortgaged households and the property market. With markets pricing a 60% chance of further increases by mid-2027, Australian borrowers face mounting costs unless inflation moderates sharply. The trade-off between fighting inflation and avoiding a property market crash remains the central tension for the central bank.

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