RBA Hikes Cash Rate to 4.35% — Third Consecutive Rise as Inflation Re-Accelerates

What happened

The Reserve Bank of Australia lifted the cash rate target by 25 basis points to 4.35% on Tuesday 5 May 2026, the third consecutive hike of the cycle that began in February. The decision unwinds the entire 2025 easing cycle and takes the cash rate back to a level last seen in late 2023.

The Monetary Policy Board voted 8 to 1 in favour, with one member preferring to hold at 4.10%. That vote split — disclosed under the Board's transparency rules introduced in 2025 — is the closest the Board has come to disagreement since the new structure took effect.

The decision had been priced into market futures heading into the meeting, and the major banks moved within hours to confirm full pass-through to existing variable-rate borrowers.

What the RBA said

The Board statement framed the decision as a response to inflation that has re-accelerated faster than the Bank had hoped:

"Inflation picked up materially in the second half of 2025, and information since the beginning of this year confirms that some of this increase reflected greater capacity pressures."

The Board also flagged the role of fuel prices and warned of broader spillovers:

"Higher fuel prices are adding to inflation and there are indications that this is likely to have second-round effects on prices for goods and services more broadly."

In the post-meeting press conference, Governor Michele Bullock acknowledged the household impact directly:

"I understand this is a really difficult time for households… but we must get on top of inflation now so that it doesn't get away from us."

The full Board statement, including forward-looking language, sits at rba.gov.au/media-releases/2026/mr-26-12. The accompanying Statement on Monetary Policy provides the underlying forecasts.

The numbers driving the decision

Three data points dominated the Board's reasoning:

• Headline CPI: 4.6% (March quarter 2026). Fuel prices contributed roughly 0.8 percentage points, but the underlying picture was no longer reassuring.
• Trimmed mean CPI: 3.5% year-on-year. This is the RBA's preferred measure of underlying inflation; the Board's target is 2-3% and the figure has now been above the upper bound for several quarters.
• Unemployment: 4.3% (March 2026). Tight by historical standards. The Board sees the labour market as still close to full employment, leaving little spare capacity to absorb cost pressures.

The May Statement on Monetary Policy now forecasts headline inflation peaking at 4.8% mid-2026, underlying inflation staying above 3% until mid-2027, and a return to the 2.5% midpoint not expected until mid-2028.

Banks pass through the full hike

All four major banks confirmed within hours that they would pass on the 25 basis points in full to existing variable-rate customers:

• Commonwealth Bank — +0.25% on variable rates, effective 15 May 2026.
• Westpac — +0.25% on variable rates (new and existing), effective 15 May 2026.
• NAB — +0.25% on variable rates, effective 15 May 2026.
• ANZ — +0.25% on variable rates, effective 15 May 2026.
• Macquarie Bank — +0.25%, effective 22 May 2026.

ING had not announced its position at the time of writing. Smaller lenders and customer-owned banks typically follow within 7-10 business days.

What it means for your repayments

A 25 basis point rise costs roughly $15 per month for every $100,000 of mortgage debt on a 30-year principal-and-interest loan. On typical owner-occupier balances:

• $500,000 loan: approximately $83 per month extra (~$996 per year).
• $750,000 loan: approximately $124 per month extra (~$1,488 per year).
• $1,000,000 loan: approximately $166 per month extra (~$1,992 per year).

These are estimates based on a typical owner-occupier P&I variable rate moving from around 6.59% to 6.84%. Your actual repayment change depends on your specific rate, balance, and remaining term — model your scenario through the Mortgage Repayment Calculator.

The cumulative effect of the three 2026 hikes (February, March, May — all 25 basis points) is roughly three times these monthly figures. A borrower with a $1 million loan is now paying close to $500 per month more than they were in January 2026.

If you're worried about your buffer to further rises, the Mortgage Stress Test Calculator shows what your repayment looks like at the APRA-mandated +3% buffer scenario and beyond.

Borrowing power impact

The hike has a sharper effect on what new borrowers can purchase than on what existing borrowers pay. Lenders assess serviceability at the contracted rate plus APRA's 3 percentage point buffer, so a +25bp move in market rates compounds into a +25bp move in the assessment rate.

For a couple on $180,000 combined household income, today's hike trims roughly $15,000-$20,000 off maximum borrowing power versus the pre-hike position — and the cumulative effect of the three 2026 hikes is closer to $50,000-$60,000 of lost capacity. The Borrowing Power Calculator applies the same APRA buffer logic real lenders use, so you can model the post-hike position directly.

Market reaction

• The ASX 200 fell about 0.2% to 8,635 immediately after the announcement, its seventh consecutive negative session.
• The Australian dollar held above 0.6720 against the US dollar, having priced in the hike before the meeting.
• Three-year swap rates moved up several basis points on the decision, consistent with markets now pricing the cash rate to reach 4.7% by end-2026 — implying one further 25bp hike in this cycle.

Forward guidance: more hikes priced in

The Board's closing line — "having raised the cash rate three times, monetary policy is well placed to respond to developments" — is softer than the explicit tightening bias in earlier 2026 statements. But Bullock's emphasis on "getting on top of inflation now" preserved a clear hawkish tone.

Markets are taking the RBA at its word. The August 2026 meeting is now fully priced for a further 25bp hike, taking the cash rate to 4.60%, with another move possible by year-end. If those expectations hold, repayments on a $1M loan would rise another $166/month from today's level by around August.

A turn back toward easing is not on the horizon in market pricing until at least mid-2027, conditional on underlying inflation falling decisively below 3%.

Political reaction

Treasurer Jim Chalmers attributed the decision primarily to "global cost-of-living shocks" — particularly the Middle East-driven oil price spike — while acknowledging the household impact. Shadow Treasurer Tim Wilson framed the hike as the consequence of government spending decisions, calling for "fiscal discipline so the Reserve Bank doesn't have to do all the work."

Both framings are partial. The Board statement explicitly identifies fuel prices as a contributor but warns about second-round effects in domestic services prices — the part of the inflation basket that monetary policy can directly influence.

What to do as a borrower

A few practical steps for households absorbing the increase:

1. Check your current rate against the market. Discount-margin negotiation is most effective right after an RBA decision when banks are competing for refinance volume. ASIC's Moneysmart guide on switching outlines the process.
2. Stress-test your buffer. If you can't comfortably absorb another 25bp, refinancing or extending your loan term is worth modelling now rather than after a further hike.
3. Consider extra repayments while you can. Each $1 of principal repaid today saves compounding interest at the new higher rate. The Extra Repayments Calculator shows the long-term saving.
4. Reassess your offset balance. Every dollar in offset now saves interest at 6.84% rather than 6.59% — the marginal value of offset funds rises with the rate.

What to do as a buyer

For prospective buyers:

1. Reset your borrowing-power expectation. The pre-approval you got in January 2026 may no longer reflect today's serviceability assessment. Ask your lender to refresh.
2. Build in buffer to the buffer. Markets are pricing one more hike. Borrowing to your absolute maximum at 4.35% is borrowing without headroom for 4.60%.
3. Watch for vendor flexibility. Three consecutive hikes typically widen vendor-buyer price-expectation gaps. The next 6-8 weeks may see auction clearance rates ease, creating negotiation room.

The bottom line

A 25 basis point hike is small in isolation but third-in-a-row matters. The cumulative tightening since February 2026 has materially raised the cost of borrowing, cut maximum borrowing power for new buyers, and added several hundred dollars per month to typical mortgage repayments.

The path from here depends on whether headline and underlying inflation peak as the Board now expects (mid-2026, easing through 2027) or persist longer. If underlying inflation prints above 3.5% in the June quarter, expect another hike at the August meeting. If it surprises lower, the Board has explicitly left itself room to pause.

We will update this article as bank rate-sheet announcements come in over the next 7-10 business days. For the live Big Four advertised rates, see our mortgage rates page.

Model your scenario: Mortgage Repayment Calculator · Borrowing Power Calculator · Mortgage Stress Test · Refinance scenarios.

Sources: Reserve Bank of Australia — Media Release MR-26-12 (5 May 2026); RBA Statement on Monetary Policy May 2026; RBA Cash Rate Target series; ABS Consumer Price Index (March quarter 2026); ASIC Moneysmart. Bank pass-through: CBA, Westpac, NAB, ANZ and Macquarie official statements 5 May 2026. Repayment estimates use a typical owner-occupier P&I variable rate; your actual change depends on your specific loan terms.

This article is general information, not financial advice. Always verify current rates with your lender and consider seeking advice from a licensed professional before acting.