RBA Expected to Raise Rates in May 2026: What It Means for Your Home Loan
Australia’s four major banks are unanimous: the Reserve Bank of Australia (RBA) is expected to lift the cash rate by 25 basis points at its May 2026 meeting, taking it from 4.10% to 4.35%. For the millions of Australians with variable rate mortgages, this is significant news — and understanding what’s driving it can help you prepare.
In this article, we break down the latest inflation data, what the major banks are saying, and — most importantly — what steps you can take right now to protect your financial position.
Why Are Rates Rising Again?
Australia’s inflation battle is far from over. The Australian Bureau of Statistics (ABS) March CPI indicator showed annual headline inflation climbing to 4.6%, up sharply from 3.7% in February. On a quarterly basis, headline CPI rose 1.4%, while the RBA’s preferred underlying measure — the trimmed mean — increased by 0.8% for the quarter.
ABS head of prices statistics Sue-Ellen Luke described the March result as “the largest monthly increase since the series began in 2017,” adding that “annual CPI inflation is the highest it’s been since September 2023.” The spike was largely driven by a 32.8% monthly surge in automotive fuel prices, tied to the Middle East conflict — though she noted this figure “pre-dates the halving of the fuel excise on 1 April.”
Transport prices rose 8.9% annually, housing costs climbed 6.5%, and food and non-alcoholic beverages were up 3.1%. These are everyday costs that every Australian household feels.
What the Major Banks Are Forecasting
Westpac: “Warning Lights Flashing Bright Red”
Westpac’s chief economist Luci Ellis took the most hawkish stance, describing the March data as having the RBA’s “inflation warning lights flashing bright red.” Westpac is forecasting not just a May hike, but two further increases in June and August — which would push the cash rate to a peak of 4.85%. Ellis noted that the oil price shock is “clearly starting” to pass through to other prices, including building products and takeaway food.
ANZ: May Hike Likely, But Signs of Moderation
ANZ’s head of Australian economics, Adam Boyton, acknowledged that the trimmed mean result came in “softer than expected,” and that “some of the momentum in underlying inflation evident in late 2025 has been moderating.” Despite this, ANZ maintained its May hike forecast, with headline inflation expected to peak around 5% annually in Q2. After May, ANZ expects a “prolonged period of steady rates.”
CBA: A “Line Ball” Decision
Commonwealth Bank described the May decision as “finely balanced,” calling it a “line ball.” CBA’s head of Australian economics Belinda Allen said the softer trimmed mean had “strengthened the case for patience,” but the central bank’s central scenario remains a May increase. Crucially, CBA believes May will mark the end of the tightening cycle — after which the RBA will remain on hold.
NAB: One More Hike, Then a Lengthy Hold
NAB’s Gareth Spence said the trimmed mean result was “slightly softer than NAB and consensus expected” but cautioned that the data was “dated given the unfolding oil price shock.” NAB is forecasting a single May rise, followed by the cash rate remaining on hold until mid-to-late 2027.
What This Means for Australian Homeowners
If you have a variable rate home loan, each 0.25% rate rise typically adds around $75–$100 per month to repayments on a $500,000 loan — though the exact figure depends on your loan balance, term, and lender. After three rate rises (as Westpac forecasts), repayments could rise by $225–$300 per month or more for mid-sized mortgages.
It is worth noting that not all lenders pass on rate changes at the same time or by the same amount. Some lenders on our panel of 35+ have competitive rates and products that may suit your individual situation — but your full financial situation would need to be reviewed to determine what’s right for you.
There are also risks to consider: rising rates reduce borrowing capacity, which can affect property values, and more Australians may face mortgage stress if their buffer savings are depleted. It is important to seek professional guidance before making any changes to your loan.
Key Questions to Ask About Your Mortgage Right Now
- Are you on a variable rate? If so, your repayments will increase if the RBA hikes in May. Review your budget now.
- Is your fixed rate expiring soon? Many Australians fixed during the pandemic era. If your fixed term ends in 2026, you may roll onto a much higher variable rate.
- Have you reviewed your rate lately? Lenders regularly adjust their rates and offers. Your current rate may no longer be competitive across the market.
- What is your buffer? APRA stress-tests borrowers at 3% above the loan rate. If your actual rate is approaching your stress-test limit, speak with a broker urgently.
What Can You Do?
In an environment where rate rises are likely, being proactive makes a significant difference. A mortgage broker can help you:
- Review your current rate and compare it against products from 35+ lenders
- Understand whether switching to a fixed rate, splitting your loan, or refinancing makes sense for your circumstances
- Assess your current buffer and repayment strategy
- Explore offset accounts and redraw facilities that can reduce the interest you pay
This is educational information only and does not constitute financial advice. Your full financial situation — including income, expenses, assets and liabilities — would need to be reviewed before any lending decision is made.
Frequently Asked Questions
Q: When will the RBA announce its May 2026 decision?
The RBA’s Monetary Policy Board (MPB) meets in the first week of May. The announcement is typically made on the Tuesday of that week, with the full Statement on Monetary Policy released the following Friday. All four major banks — ANZ, CBA, NAB and Westpac — are currently forecasting a 25-basis-point rise at this meeting.
Q: How much will my repayments increase if the RBA raises rates by 0.25%?
On a $500,000 variable rate home loan over 25 years, a 0.25% rate rise typically increases monthly repayments by approximately $75–$100. However, the exact amount depends on your outstanding balance, remaining term, and how quickly your lender passes on the change. Speaking with a mortgage broker helps you understand the specific impact on your loan.
Q: Should I fix my home loan rate now?
This depends on your individual circumstances, goals, and risk tolerance. Fixed rates offer repayment certainty, but may come with break costs if you need to sell or refinance early. Variable rates offer flexibility but expose you to rate movements. Your full financial situation would need to be reviewed to determine the most suitable option — a no-obligation consultation with a broker can help you weigh the options.
Speak to FinHub About Your Home Loan
With more rate rises potentially on the horizon, now is a good time to understand exactly where you stand with your mortgage. The team at FinHub has settled $600M+ in loans and holds 350+ Five-Star Google Reviews. Our award-finalist brokers work across 35+ lenders to find solutions tailored to your situation.
Contact Daniel Nguyen at FinHub:
📞 1300 346 482
🌐 finhub.net.au
📧 daniel@finhub.net.au
Book a no-obligation consultation today.
Disclosure: Finance Hub & Networks Pty Ltd | Australian Credit Licence 573164 | ACN 644 141 613
Disclaimer: Your full financial situation would need to be reviewed prior to acceptance of any offer or product. This article is educational in nature and does not constitute financial advice. Credit decisions are subject to lender assessment and approval criteria.
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