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Governor Michele Bullock says the full effect of a rate change can take 12 to 18 months to come through, which means the increase that took effect on 30 September has only just started working its way into household budgets.

On paper, the Reserve Bank of Australia's latest move happened in an instant. At 2.30 pm on 29 September the Monetary Policy Board announced a 25 basis point increase in the cash rate target to 4.60 per cent, effective the next day. In economic terms, though, the Governor suggested the change has barely begun.

Asked at her media conference how long it takes for policy to work, Ms Bullock said "it can take 12, perhaps even 18 months" for the full effect of rate changes. That lag explains why a decision announced in late September is unlikely to show its full weight in household budgets, spending patterns or inflation for some time, and why the RBA's own assessments are framed around conditions that are still evolving.

Several layers of tightening at once

September's decision was not a standalone event. It was the fourth increase of 2026; Ms Bullock described the earlier moves at the media conference as three times earlier in the year, adding: "This is one more."

At the House of Representatives Standing Committee on Economics on 18 September, she said the cash rate had increased by 75 basis points in 2026 before the September rise. Together with the latest move, that makes a cumulative 100 basis points this year.

Deputy Governor Andrew Hauser told ABC 7.30 on 8 September: "Inflation is too high, and that's why we raise interest rates three times at the beginning of this year."

On the Governor's 12-to-18-month timeline, the economy is effectively digesting several rounds of tightening at the same time. Rises made early in the year may still be feeding through, while the September increase is at the very start of the process.

The channel the Governor ranks first

Mortgages tend to dominate public discussion of rate rises, but Ms Bullock did not single them out as the main channel. She described the exchange rate channel as the most important, because it affects import prices.

The RBA publishes exchange rates daily. As at 4.00 pm on Friday 2 October, the Australian dollar was at 69.33 US cents and the trade-weighted index stood at 64.4. A single reading says little on its own, but movements in these measures over coming months are one of the ways the effects of policy can show up in prices.

Why mortgages are a slower burn than they look

For borrowers, the mechanical link is straightforward. Assistant Governor (Economic) Sarah Hunter said on The Pay Off podcast on 22 September that if the RBA raises rates, a borrower's minimum repayment goes up.

Several factors may slow how hard that change bites. Ms Hunter said most borrowers have offset or redraw accounts and can choose to put more in, and that just over 40 per cent of households with mortgages are two or more years ahead on their payments. The October Financial Stability Review (FSR) estimated that offset and redraw buffers leave "the median borrower able to cover over a year of scheduled mortgage payments at current interest rates".

Borrowers with that kind of cushion may be able to absorb higher repayments for a time without sharply reducing their spending, which is one reason the effect on the wider economy can take time to build. Borrowers may wish to check their loan terms to see when and how their own repayments change.

The burden is still meaningful. Ms Bullock said scheduled mortgage payments, including interest, are back up to around 10 per cent of household disposable income. "I know this decision is difficult for households with a mortgage and businesses with loans," she said.

Renters face a different dynamic. Ms Hunter said rents move with demand and supply in local markets, not automatically with interest rates.

The early signals the Board is watching

The Board's statement on 29 September offered clues about which effects were already visible. It said: "There are signs that growth in consumer spending is easing gradually as expected." At the same time, "Growth in business investment and debt is strong." It also flagged that "Short-term measures of inflation expectations remain elevated."

The FSR provided a view of household pressure. The share of variable-rate owner-occupier borrowers in cash flow shortfall, where income does not cover scheduled repayments and essential expenses, "increased a little over the first half of 2026, but remains relatively low at around 2 per cent". The RBA projected it to stay a little under 2 per cent for some time.

These readings largely reflect conditions before the September increase. In that sense, much of the latest move's effect is yet to be captured in the data.

The delay between a decision and its full effect helps explain why the RBA's messaging looks ahead, not only at today's data. Ms Bullock told the parliamentary committee: "A period of subdued growth of aggregate demand is needed to reduce capacity pressures and bring inflation down sustainably."

She also stressed the importance of expectations. "It's critical that we stop expectations for high inflation from becoming embedded in price-setting decisions," she said on 29 September.

The Board's statement said it "will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed." That is a description of the Board's stance, not a forecast of its next move.

What to watch over the coming weeks:

  • the minutes of the September meeting on 13 October;
  • the next CPI update on 28 October; and
  • the Board's 3 November decision, released alongside a new Statement on Monetary Policy.

The bottom line

The September increase took effect on 30 September, but by the Governor's own estimate its full effect could take 12 to 18 months to arrive. Offset and redraw buffers may cushion many borrowers in the meantime, while the exchange rate, which Ms Bullock ranks as the most important channel, works through import prices. For now, the data the RBA is reading largely pre-date the latest move, which is why the coming months of releases will be closely watched.