Governor Michele Bullock was blunt about what September's rate rise means for mortgage holders, but she was equally clear that household budgets are only one of the ways higher rates do their work.

When the Reserve Bank of Australia (RBA) lifted the cash rate target by 25 basis points to 4.60 per cent on 29 September 2026, Governor Michele Bullock did not dress up the consequences for borrowers. At her 3.30 pm media conference that afternoon, she said: "Those who have mortgages, yes, this clearly impacts them and it hurts them."

A fourth increase in one year

The September move was the Monetary Policy Board's fourth increase of 2026. Three rises earlier in the year had already lifted the cash rate to 4.35 per cent, where the Board unanimously left it at its August meeting. Speaking to the House of Representatives Standing Committee on Economics on 18 September, Bullock put the cumulative increase at that point at 75 basis points. Adding September's 25 basis points brings total tightening in 2026 to 100 basis points.

The Board's September decision was also unanimous. Its statement said inflation remains elevated, that some upside risks have materialised (including further disruption to global oil supply from the Middle East conflict and strong AI-related demand pushing up the prices of technology goods), and that capacity pressures remain. It judged that further tightening was warranted to return inflation to the 2–3 per cent target within a reasonable period.

On the numbers, headline CPI inflation was 4.0 per cent over the year to August 2026, on the monthly measure. Underlying inflation is lower: Bullock said it had been "about 3.5 per cent for the past six months", and the trimmed mean measure was 3.6 per cent in the June quarter. Both sit above the target band. Bullock summarised the rationale in one line: "Higher interest rates are needed to ensure inflation returns to target."

How the cash-flow channel works

The cash-flow channel is the most visible link between the cash rate and household budgets. When lenders pass higher rates on to variable-rate mortgages, scheduled repayments rise. Money that goes to the lender is money not spent at shops, cafes or on services, and that softer spending helps ease the demand pressure the RBA says is pushing up prices.

Assistant Governor (Financial Markets) Christopher Kent described the build-up of that pressure in a 13 August speech, before the September increase. "Scheduled mortgage payments have risen and are now close to their 2024 peak as a share of household disposable income", he said.

Bullock was careful, though, to describe the cash-flow effect as only one of several channels. Indeed, she said that "according to our research, in fact, the most important channel is the exchange rate channel." As she put it, "raising interest rates impacts import prices. It makes imports cheaper". Kent made a related point in August: "A higher exchange rate helps moderate inflation by lowering the domestic price of imports."

Her "less money to spend" remark, then, describes who bears the cost, not the main way policy works.

Illustration: what 25 basis points can look like

To give a sense of scale, the following is an illustration only. It is not an RBA calculation and does not describe any real loan. Assumptions:

  • a $500,000 loan, 30-year principal-and-interest, calculated as a new loan over 360 monthly repayments
  • an assumed variable loan rate of 6.00 per cent before September's increase
  • full pass-through of each cash rate change to the loan rate

On those assumptions, the monthly repayment at 6.00 per cent is about $2,997.75. At 6.25 per cent, after full pass-through of the 25 basis point increase, it rises to about $3,078.59. That is roughly $80.83 more a month, or about $970 a year.

Extending the same illustration to the full 100 basis points of 2026 tightening, and instead assuming a starting loan rate of 5.25 per cent, the monthly repayment would rise from about $2,761.02 to about $3,078.59. That is an increase of roughly $317.57 a month, or about $3,811 a year.

Real outcomes depend on balances, remaining terms, lender rates and actual pass-through.

Who is feeling it, and who has buffers

The RBA's October 2026 Financial Stability Review, released on 1 October, gives a broader read. It found the share of variable-rate owner-occupiers with a cash-flow shortfall "remains relatively low at around 2 per cent", and that most of those in shortfall have savings to cover it for at least six months. The review said the share in severe stress "will remain well below its 2024 peak".

Bullock pointed to one source of those buffers: "a lot of people have a mortgage, and then they have an offset account, which sits in the background." She added that "the amount of money in those offset accounts has actually grown quite a lot over the last decade or so."

Still, the squeeze is not only about mortgages. The review noted that real household disposable income per capita declined slightly over the first half of 2026, though it remains higher than its 2023 and 2024 averages. And Bullock observed that "fuel prices, fertiliser prices, transport prices, all these things now are permanently higher."

There is also a timing issue. Bullock told the parliamentary committee that monetary policy works with a lag and that the full effects of recent rises were not yet visible. In other words, the cash-flow cost of 4.60 per cent is still filtering through household budgets.

The bottom line

Bullock's "less money to spend on things" remark is an unvarnished account of how rate rises reach households with mortgages, and the RBA has not pretended the cost is painless. But the Governor framed that cost as one channel among several, with the RBA's research pointing to the exchange rate as the most important. The Financial Stability Review suggests most variable-rate owner-occupiers are coping for now, many with savings to draw on. What happens next has not been pre-announced: the Board's next decision is due at 2.30 pm on 3 November 2026, and on that score Bullock said simply, "I'm not going to give you forward guidance."