ANOTHER INTEREST RATE RISE!

Lebba Khater Posted on 29 Sep 2026

The key message from Reserve Bank of Australia (RBA) Governor Michele Bullock is that inflation remains too high, and the RBA is prepared to keep monetary policy restrictive — or raise interest rates further — if necessary to bring inflation back under control.

At its meeting on 29 September 2026, the RBA increased the official cash rate by 0.25 percentage points (25 basis points), from 4.35% to 4.60%. The Governor said the increase was necessary because inflationary pressures were proving more persistent than previously expected.

1. Why the RBA increased interest rates

The Governor identified several reasons for the decision:

  • Inflation is still above target. Inflation was running at approximately 3.5%, above the RBA's 2–3% target range.

  • Domestic demand remains resilient. Consumer spending and business investment have held up better than expected, sustaining pressure on the economy's capacity.

  • Business costs are rising. Firms continue to face higher input costs and are passing some of these costs on to customers.

  • Global energy prices are a concern. The escalating Middle East conflict has pushed oil prices higher, increasing petrol prices and the costs of transporting and producing goods.

  • Artificial intelligence investment is adding to price pressures. The global AI investment boom is increasing demand for some technology-related goods and services, as well as certain commodities.

The RBA's concern is that these pressures could keep inflation elevated for longer than anticipated, rather than allowing it to fall steadily towards target.

The RBA wants inflation back within 2–3%

The Bank is focused on bringing inflation sustainably back to its target range and preventing businesses and households from building expectations of persistently high inflation into their pricing and wage decisions.

The Governor noted that monetary policy can take approximately 12–18 months to have its full effect. The RBA will assess whether previous increases are sufficiently slowing demand, rather than reacting mechanically to a single inflation figure.

The RBA is balancing inflation against employment

The Bank wants to slow demand and reduce inflation without unnecessarily sacrificing employment. Bullock said a recession was not the RBA’s central case at that time, but acknowledged the challenge of balancing these objectives.

2. What is the broader economic message?

The Governor is concerned that Australia has a demand-versus-supply problem. Spending and investment are growing more strongly than the economy’s ability to supply goods and services, while weak productivity growth limits that capacity. Higher energy costs and global investment pressures are adding to the problem.

The RBA is using higher interest rates to moderate demand while allowing time for supply and productivity to improve. Bullock also emphasised that high inflation itself harms households by eroding purchasing power, so leaving inflation elevated is not a cost-free alternative.

3. My interpretation for property owners and investors

For the Australian property market, the practical implications are:

  • Mortgage holders: borrowing costs may rise further if inflation remains persistent. Households should not assume that the September increase was the final one.

  • Property prices: sustained higher borrowing costs can constrain borrowing capacity and buyer demand, although local supply, employment and population growth also matter.

  • Property developers: higher financing costs and potentially softer demand can put pressure on project feasibility, valuations and development margins.

  • Commercial property investors: higher financing and capitalisation-rate assumptions can affect asset values, particularly where rental growth does not offset higher costs.

  • Retirement-living developments: construction costs, financing expenses and purchasers’ affordability are important sensitivities when assessing project feasibility and timing.

These are economic implications rather than outcomes guaranteed by the RBA’s decision.

4. Bottom line

The Governor’s September message was that inflation has not been brought under control sufficiently, and the RBA is not yet comfortable that existing policy settings will do enough. The 0.25 percentage-point increase to 4.60% reflects a willingness to act against persistent inflation, despite pressure on mortgage holders and the housing market.

Further increases remain possible, but Bullock has made clear that the RBA will look at the outlook and the cumulative effects of past increases rather than announce a predetermined path.