Rate hike adds $107 to home loans

The Reserve Bank of Australia increased the official cash rate by 0.25 points on Tuesday, lifting it from 4.6% to 4.85%. This is the fifth rate rise for the year. The move directly increases the cost of borrowing for more than 3.3 million households with home loans. According to Canstar, the new rate adds $107 to the monthly interest payment on a standard $700,000 loan. Over the course of 2026, the five hikes have raised that same repayment by a total of $532.

The central bank cited surging inflation as the primary driver for the decision. Inflation reached 4.3% in the year ending September, a figure that exceeded the bank's earlier predictions. The rate decision split the monetary policy board. Six members voted to raise rates, while three members voted to hold the rate steady. In its post-meeting statement, the board said it would continue doing what is necessary to bring inflation back to its target range.

The bank's latest forecasts indicate that the cost of living crisis will persist for at least another year. Inflation is projected to remain above 3% until the end of 2027. This timeline is approximately nine months later than previous estimates suggested. The delay is attributed to a global oil shock stemming from the war in the Middle East. Oil prices are expected to ease over the next 18 months but will remain higher than usual, keeping pressure on fuel costs and business expenses.

Economic growth is expected to remain below trend levels through the end of 2028. The bank forecasts GDP growth of 1.6% for the current year and 1.3% for 2027. Both figures are below the estimated potential growth rate of 2%. Despite these slower growth figures, the bank does not predict a recession in the next two years. Unemployment is currently at 4.7% and is forecast to rise to 4.9% by the end of next year before crossing the 5% mark in 2028.

The Statement on Monetary Policy noted that public demand was weaker than expected in the first half of 2026. This slowdown resulted from the expiration of certain cost of living measures and reduced spending in sectors such as defense and aged care. The bank also reported that business investment growth for 2026 is now forecast at 12%, nearly tripling previous estimates. This increase is linked to ongoing capacity constraints driven by the global artificial intelligence boom.