The Reserve Bank has left its official interest rate on hold at 4.35%, after economic activity slowed and unemployment hit a four-year high.
The widely expected decision on Tuesday will bring little relief to mortgage holders, already strained by the RBA’s three consecutive rate hikes earlier in 2026.
For an owner-occupier with an
average-sized new mortgage of $745,000, now paying a typical rate of 6%, the year’s rate increases have seen monthly repayments soar from $4,114 to $4,467. A fourth rate increase would have added another $120.
Households barely increased spending on non-essentials in the three months to March but cut back on saving to
spend on essentials like electricity and fuel.
Slower consumer spending saw real GDP growth falter to just 0.3% in the March quarter, from 0.9% in the December quarter of 2025.
Unemployment
jumped to 4.5% in May for the first time since 2021.
Justin Zook, a senior director at Fitch Ratings, said interest rate hikes would probably hit household spending harder in 2026 than they had in 2022 and 2023, partly because households had less money in savings.
“Households just don’t have … those piles of cash that they had because they weren’t out spending money during the pandemic,” Zook said.
All four major banks expected interest rates would stay on hold on Tuesday. Top economists at ANZ, Commonwealth Bank and NAB had forecast rates had hit their peak and would will start to fall from the middle of 2027.
Financial markets, though, have bet a hike is more likely than not over the next 12 months.
Westpac had predicted the cash rate would rise in August and September, with no cuts until 2028. Westpac’s chief economist, Luci Ellis, has predicted inflation will peak at 4.7% in late 2026, higher than the RBA’s forecast.
In a note on Friday, Ellis wrote higher fuel prices from the US-Israel war on Iran would push up freight and other costs, keeping inflation high over 2026. Westpac expects petrol prices of 205 cents a litre and diesel at 239 cents a litre on average over the coming three months after the government’s fuel excise cut ends.
More to come …
<small>Source: The Guardian</small>
