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The Reserve Bank of Australia (RBA) has increased the cash rate by 25 basis points to 4.35% at its May meeting.
The decision reflects renewed inflation pressure, including higher fuel and commodity prices, stronger cost pressures for businesses, and rising short-term inflation expectations. In its statement, the RBA said there are also greater uncertainties around the outlook for both inflation and economic activity.
What is the cash rate?
The cash rate is the interest rate banks pay to borrow money from each other overnight. It has a very real flow-on effect, influencing the interest rates banks offer on home loans, personal lending, savings accounts and more.
If you’d like to read the decision in full, you can view it here: Cash Rate Target | RBA.
Why has the RBA increased rates?
According to the RBA, inflation picked up noticeably in the second half of 2025, and recent data suggests some of that increase reflects ongoing capacity pressures in the economy.
The Bank also pointed to:
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sharply higher fuel and related commodity prices linked to conflict in the Middle East
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early signs that businesses facing cost increases are looking to pass them on through higher prices
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a rise in short-term inflation expectations
In short, the RBA is trying to contain inflation before those pressures become more deeply embedded.
How could this affect you?
A cash rate rise does not affect everyone in the same way, but there are a few common impacts. If you have a variable rate mortgage, your lender may pass on some or all of the increase, which could raise your monthly repayments.
If you are coming off a fixed rate soon, it may be useful to check what rate your loan could move to and how that compares with other options available in the market.
If you’re holding cash or savings, some deposit rates may improve, although the benefit can vary widely between providers. And even if you do not have a mortgage, higher rates can still affect your wider financial position through household budgets, business costs, investment markets and confidence.
The below infographic by RBA further explains how the changes to the cash rate affect broader economic conditions.
Infographic Source: RBA
You can view the Full Explainer on The Transmission of Monetary Policy here: The Transmission of Monetary Policy
Estimate the impact on mortgage repayments
If your lender passes the rate rise, even a small increase can add up over the course of a year. A practical first step is to check what this latest increase could mean for your mortgage and your broader financial position.
You can use PictureWealth’s Rate Check Calculator* to estimate the repayment impact and see whether it may be worth reviewing your current loan.
Your move: stay clear, not reactive
Rate changes can feel frustrating, especially when living costs are already under pressure. But they can also be a useful prompt to step back and look at the bigger picture.
This is a good time to review:
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how changes in interest rates may affect your current loan
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how much flexibility you have in your monthly cash flow
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how higher rates may affect cash flow, borrowing costs and broader financial plans
At PictureWealth, we believe better decisions start with better visibility. When you can see the full picture, it becomes easier to plan your next move with confidence.
*This information is general in nature and does not take your personal circumstances into account.