In the first half of 2025 the cash rate was coming down; by the end of September 2026 it had been raised four times in a single year, and the reasons lie in inflation that never settled.

Less than two years ago, Australian borrowers were watching the cash rate fall. Today it sits at 4.60%, after the Monetary Policy Board raised it on 29 September 2026 for the fourth time this year. For households that refinanced, budgeted or bought property on the expectation of steadily easing rates, the turnaround has been abrupt.

This article sets out the confirmed points on that path and the explanations the RBA has given for the change of direction.

The path, point by point

The timeline below sticks to moves and dates on the public record cited in this article. It does not attempt to reconstruct every decision in between, and the size of each of the earlier 2026 increases is not set out here.

  • 19 February 2025: the cash rate target was cut by 0.25 percentage points to 4.10%.
  • 21 May 2025: a further cut of 0.25 percentage points took it to 3.85%.
  • February to May 2026: Governor Michele Bullock said there were three increases earlier in the year in this window.
  • 29 September 2026: the Board raised the target by 25 basis points from 4.35% to 4.60%, effective 30 September. The decision was unanimous.
  • 3 November 2026: the next cash rate update is scheduled for 2.30 pm.

Comparing the two ends of that line, today's 4.60% is 0.75 percentage points above the 3.85% set in May 2025. That simple subtraction is not a count of moves, but it shows how much ground the cash rate has covered.

Why 2025 looked different

Inflation was the hinge. Governor Bullock said at her 29 September media conference that inflation had been outside the 2–3% target for about six years, and was only briefly back within the target in 2025. The cuts of early 2025 were made in that same year.

That brief return proved short-lived. By the June quarter of 2026, headline CPI was running at 3.9% over the year and the trimmed mean, the RBA's preferred measure of underlying inflation, was 3.6%. The monthly headline CPI reached 4.0% over the year to August 2026. Bullock also said underlying inflation had been running at about 3.5% over the past six months, against a target midpoint of 2.5%.

What turned the cycle

The RBA's explanation has several strands, drawn from the decision statement, the minutes and the Governor's remarks.

Domestic capacity. "Inflation is too high and has been driven by domestic capacity pressures," Bullock said. The minutes record that staff judged a recent upside surprise more likely reflected domestic capacity pressures than the pass-through of Middle East cost shocks.

Weak productivity. Unit labour cost growth was above what is consistent with the inflation target, driven mainly by subdued productivity growth rather than strong nominal wages. Bullock was blunt: "The bottom line is that productivity is doing nothing." She added that "monetary policy can't do anything about productivity."

A labour market that is still tight. Unemployment rose to 4.6% in August, compared with about 3.5% a couple of years earlier, according to the Governor, who also said more than one million jobs had been created over that period. Even so, she noted that "the unemployment rate is still quite low historically" and said "the labour market remains a little tight."

Global shocks. The decision statement pointed to a broader Middle East conflict, higher global energy prices and AI-related demand lifting technology goods prices. "The AI boom is also adding to demand in the Australian economy at a time when we already have capacity pressures," Bullock said.

A possibly higher neutral rate. The minutes note that 4.35% may be "less restrictive" than it was two years earlier if the neutral rate, which Bullock defined as "the interest rate at which we think monetary policy is neither restrictive nor expansionary", has risen.

How far policy has moved, and what it means for borrowers

The August 2026 Statement on Monetary Policy, with forecasts finalised on 5 August, assumed a cash rate path of 4.3% in June 2026, rising to 4.4% in December 2026 and 4.5% through 2027 before easing back to 4.4% in 2028. The current 4.60% sits above every one of those assumptions.

The minutes explain why: the August forecasts had required several favourable developments that no longer appeared likely to all occur.

Policy also works with a delay. Bullock said rate changes take about 12 to 18 months to have their full effect, so on that timeline the increases of early 2026 would still be working their way through the economy. The minutes list those lagged effects among the considerations in favour of holding in September, alongside downside risks to activity and employment and falling housing prices.

The reversal has shown up in household budgets. The minutes record that scheduled mortgage payments have risen to around 10% of household disposable income, around their 2024 peak, and that new housing loan commitments fell sharply, led by investors. The decision statement adds that housing prices have fallen in most capital cities.

The Board has not said whether more increases will follow. The minutes say it will act as needed, "including increasing the cash rate target further if required", and the Governor said: "I'm not going to give you forward guidance." Borrowers trying to understand how rate changes affect their own situation may wish to seek licensed professional advice.

The bottom line

The shift from cuts in 2025 to four rises in 2026 reflects an inflation problem that the RBA says is now driven largely at home: capacity pressures, stalled productivity and a still-tight labour market, compounded by energy and technology shocks from abroad. The cash rate is now above every assumption in the August forecasts. Whether the cycle has further to run is, on the Board's own account, a question for the data.