Reserve Bank of Australia Raises Interest Rates Amid Warning of ‘Human Disaster’

Millions of Australian mortgage borrowers are facing another sharp increase in household costs after the Reserve Bank lifted interest rates to their highest level in almost 15 years.

The RBA board unanimously increased the cash rate by 25 basis points to 4.6 per cent on Tuesday, raising concerns that households could face even more rate hikes before Christmas.

The decision pushed the cash rate to its highest point since 2011 and marked the fourth interest rate rise borrowers have endured in 2026.

Canstar estimates that, if lenders pass on the full increase, monthly repayments will climb by around $91 for a $600,000 mortgage, $114 for a $750,000 loan and $152 for a $1 million mortgage.

The combined effect of the increases is considerably more severe. Four rate rises this year have added roughly $364 a month to repayments on a $600,000 mortgage and about $606 a month on a $1 million loan. Over a year, that equates to approximately $4,400 and $7,300 respectively.

In its statement explaining the decision, the Reserve Bank declined to rule out further tightening, warning it was prepared to raise rates again if inflation failed to ease sufficiently.

The central bank cited higher international oil prices, the ongoing conflict in the Middle East and evidence that businesses were still passing rising costs on to consumers.

Although the RBA left rates unchanged in August, governor Michele Bullock said she ‘doesn’t like people losing their jobs’. However, she has also indicated that a weaker labour market and higher unemployment could be necessary to bring inflation back under control.

Critics say the consequences of higher interest rates will extend beyond mortgage stress, warning that slowing economic activity could cost Australians their jobs.

Australian Council of Social Service chief Cassandra Goldie said rate increases would put employment at risk, with the greatest impact felt by people who lose work or cannot secure enough paid hours.

‘Since interest rates started to increase, an extra 200,000 people are out of paid work,’ she said.

‘We cannot know with certainty what effect another rate rise will have on unemployment over the next year.

‘A move towards, or above, 5 per cent would create a human disaster, shutting people out of work for years and leaving them dependent on grossly inadequate income support payments.’

Those who lose their jobs may be forced to rely on JobSeeker, which currently provides $417 a week. That is equivalent to only 41 per cent of the minimum wage and remains well below the national median rent of $703, according to the latest SQM Research figures.

Asked about ACOSS’ concerns on the ABC, Treasurer Jim Chalmers said he did not expect the flow-on effects to be as serious as the organisation had suggested.

‘It is possible to maintain full employment and low unemployment while also achieving lower and more stable inflation,’ he said.

‘That is the Reserve Bank’s objective, and it is the government’s objective as well.’

Despite concerns about the impact on jobs, economists said inflation remains too high for the RBA to declare victory. 

REA Group senior economist Eleanor Creagh said underlying inflation has been running at 3.6 per cent, well above the RBA’s 2 to 3 per cent target.

‘Higher mortgage repayments will weigh on discretionary spending at a time when households are already contending with elevated living costs, although resilient employment and incomes continue to provide an important buffer,’ she said.

‘The economy has slowed, but not enough to give the RBA confidence that inflation will return sustainably to target without further tightening.’

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Ms Creagh said the rate rise will drive down home prices and sales activity further. 

‘While structural housing undersupply remains a long-term support for prices, in the near-term, affordability constraints, higher borrowing costs and weaker buyer demand are likely to keep downward pressure on prices,’ she said.

Beyond its impact on the housing market itself, the rate rise is also expected to make buying a home even harder for those trying to get a foothold.   

Domain chief residential economist Dr Nicola Powell said the rate rise will push home ownership even further out of reach for many Australians, particularly first-home buyers already facing significant affordability challenges.

‘Every increase in interest rates reduces the amount buyers can borrow, limiting what they can afford to pay and pushing some aspiring homeowners out of the market altogether,’ she said.

‘For many, that means delaying their plans while they save a larger deposit or work to meet stricter lending requirements.’

Dr Powell said Sydney and Melbourne could be hit hardest by another rate rise just as the market was behinning to show early signs of stabilisation, however, she said the bigger challenge is what higher rates could mean for future housing supply. 

‘The risk is that today’s fight against inflation becomes tomorrow’s housing shortage,’ she said. 

‘Building approvals remain subdued, but that’s not because construction activity has disappeared. Housing is increasingly competing with infrastructure, renewable energy and data-centre projects for the same workers, materials and resources. 

‘Australia’s construction industry only has so much capacity. As labour and materials are drawn into other major projects, it becomes harder and more expensive to bring new housing developments to market.  

‘Higher rates may help cool demand in the short term, but they can also make it harder to increase housing supply and address Australia’s long-term housing shortfall.’

There are already signs higher borrowing costs are biting, with new figures showing Australians are cutting back on non-essential spending. 

The latest spending figures from the ABS suggest cash-strapped households are cutting back on discretionary items such as clothing, furniture and recreation, reinforcing the RBA’s view that consumer demand remains subdued as it weighs future rate decisions. 

Head of business statistics Tom Lay said recreation and culture spending saw the largest fall, down 1.4 per cent, after months of higher spending associated with major sporting events.

‘Clothing and footwear, recreational goods, food, health, and furniture also fell,’ he said.

‘These falls were offset by higher transport spending – up 2.3 per cent – leaving overall household spending unchanged from July.

‘Both fuel spending and new vehicle sales contributed to this rise, especially electric vehicles sales as households respond to rising fuel prices.’

University of Sydney economics senior lecturer Dr Luke Hartigan said recent commentary by senior officials indicate the Bank is losing tolerance with persistently high inflation which has been above the RBA’s target band for over 4 years. 

‘The RBA is worried, if this continues, households and businesses will start to expect higher inflation which will feed into prices, causing more inflation, creating a difficult cycle to break,’ he said.

‘At the same time, the labour market remains relatively tight, and many businesses are struggling to increase output because they are already making full use of their staff and resources, suggesting inflationary pressures remain an issue even after the three recent increases. 

‘With another rate increase by the RBA expected in November, the outlook for the local economy points to further downward pressure on housing prices, higher servicing costs for existing mortgage holders, an uptick in the unemployment rate, and a slowdown in economic activity.’