The Reserve Bank’s August meeting lands Tuesday with the cash rate expected to stay at 4.35%, according to 92% of economists polled. That’s the consensus. The tension sits in what happens after that.
Forty-four per cent of the same group still forecast at least one additional increase before the end of 2026. That’s down from 55% last month, but it’s nearly half the panel, and it signals divided views on whether inflation pressures have genuinely eased or simply paused.
What’s keeping the split alive
Recent inflation data came in softer than the RBA’s own projections, giving the board room to hold. Services inflation, typically stickier than goods prices, has shown signs of cooling. Household spending has softened in discretionary categories, and job vacancy rates are off their peaks.
But wage growth remains elevated relative to productivity gains, and rents continue climbing in tight markets. Those two factors feed into services inflation with a lag, which is what the minority forecast is watching. If wages keep rising faster than output and housing costs stay firm, the next inflation print could surprise higher.
The RBA has moved three times already this cycle when markets weren’t pricing it in. The pattern matters: central banks that pause mid-cycle often resume if core pressures don’t break.
The impact on mortgage holders now
Key numbers
- Cash rate sitting at 4.35%, highest level in over a decade
- 38% of homeowners reported difficulty meeting mortgage repayments in July
- 44% of economists still forecast one more rate rise before end-2026
- Variable rate borrowers paying roughly $850 more per month than two years ago on a $600,000 loan
Mortgage holders facing repayment stress have two immediate levers: negotiate a rate discount with their current lender, or refinance to a cheaper product. The gap between loyal-customer rates and new-customer rates at the same bank can sit above 80 basis points in some cases.
Borrowers who locked fixed rates during 2020-2021 at sub-2.5% are now rolling onto variable rates above 6%. That’s a payment shock of $1,200-plus per month on a typical loan. Serviceability buffers, the extra repayment capacity lenders test at approval, are being tested in real time. Anyone who stretched their buffer at approval is now living inside it.
What would tilt the board toward another move
The RBA’s tolerance for above-target inflation has narrowed. If the next quarterly CPI print shows headline inflation above 3.5% or trimmed mean (the measure the RBA watches closest) stalling above 3.2%, the case for another 25-basis-point move strengthens.
Second-order effects matter here. If businesses keep lifting prices because they expect wages to keep rising, and households keep spending because employment stays tight, inflation becomes self-reinforcing. The RBA would move to break that loop before it embeds.
The risk for borrowers isn’t just another rate rise, it’s how long rates stay elevated. A single additional hike that gets inflation back to target faster shortens the restrictive period. A pause that lets inflation drift means higher rates for longer, which compounds the serviceability squeeze over time.
Red flags over the next four months
Watch the September quarter CPI due late October. If services inflation doesn’t fall below 4%, the probability of a November rate move climbs. Wage Price Index data (next release September) will show whether pay growth is decelerating or holding firm above 4% year-on-year.
Retail sales and household consumption data provide the clearest signal on whether higher rates are biting. If spending holds up despite rate rises, it tells the RBA their policy isn’t restrictive enough yet. If spending drops sharply, the pause extends.
Rental vacancy rates remain historically tight in most capital cities, which feeds into CPI’s housing component with a three-to-six-month lag. Rental vacancy rates hit record lows as supply constraints persist, keeping upward pressure on one of the stickiest parts of the inflation basket.
Trade-offs and what they mean for planning
Borrowers face a choice: pay down variable debt aggressively now while assuming rates stay high, or preserve liquidity in offset accounts in case rates fall sooner than expected. There’s no perfect answer because the outcome depends on inflation data we don’t have yet.
The conservative play, building a repayment buffer equal to six months of principal and interest, held in offset, gives flexibility either way. It reduces interest paid if rates stay high, and it’s accessible if cash flow tightens further.
Refinancing works when the rate saving exceeds the cost of switching (application fees, valuation, discharge costs). On a $500,000 loan, an 80-basis-point rate cut saves roughly $4,000 per year, which covers most switching costs within six months. Borrowers who haven’t shopped their rate in over 12 months are statistically paying more than they need to.
Borrowing capacity constraints have tightened alongside rate rises, making refinancing harder for investors and anyone whose income hasn’t kept pace with serviceability tests. Lenders now assess repayment capacity at rates above 9%, which locks some borrowers into their current loan even when better rates exist.
What happens if the split forecast is right
If the minority view proves correct and the RBA does move once more, it likely happens before December. That timing keeps the board ahead of any inflation re-acceleration heading into 2027, and it aligns with the pattern of moving when data justifies it rather than waiting for certainty.
A final 25-basis-point rise to 4.60% would push the average variable mortgage rate above 6.5%. On a $600,000 loan, that’s an additional $90 per month. Small in isolation, meaningful when stacked on top of two years of prior increases and a cost-of-living environment where most household budgets are already tight.
The alternate scenario, rates hold at 4.35% through year-end and begin cutting in early 2027, depends on inflation falling consistently below 3% and staying there. That requires both services inflation and wages growth to decelerate faster than they have so far.
Bottom line for borrowers
The next RBA decision is almost certain to be a hold. The decision after that is not. The 44% of economists forecasting another rise aren’t fringe voices, they’re watching wage growth, services inflation, and household spending resilience that could justify tightening further if the data breaks the wrong way.
Start here: if your current mortgage rate sits above 6.2% and you haven’t contacted your lender in the past year, get a retention offer or a refinance quote this week. That’s the one lever you control regardless of what the RBA does next. If you want the weekly signal on rates, credit conditions and what moves next, subscribe to the newsletter.
General info, not financial advice.
