Key Highlights

  • Borrowers face higher repayments, while workers face a slowing labour market and, for now, real wage cuts.
  • The minutes point to low arrears, savings buffers and limited negative equity as cushions for many, though not all, households.
  • The next CPI release is scheduled for 28 October and the next cash rate decision for 3 November.

The September rate rise lands on mortgage holders through higher repayments and on workers through a slower economy — and the RBA's own documents acknowledge both, while pointing to buffers that cushion many households.

When a central bank raises interest rates, the cost is not spread evenly. The Reserve Bank of Australia's (RBA) decision on 29 September 2026 to lift the cash rate target by 25 basis points to 4.60% — the fourth increase of the year — affects different groups in different ways.

Governor Michele Bullock did not pretend otherwise. "Now, I know this decision is difficult for households with a mortgage and businesses with loans," she told reporters. "Those who have mortgages, yes, this clearly impacts them and it hurts them."

Her case for the decision was that the alternative — letting inflation persist — carries costs of its own. "Every household has seen how the price of everything has gone up in recent years," she said. The question this explainer examines is how the burden of tighter policy falls across borrowers and workers, drawing only on what the RBA has published.

The borrower's ledger

For households with variable-rate mortgages, the transmission of a cash rate rise is the most direct. Christopher Kent, Assistant Governor (Financial Markets), said in August that lending and deposit rates had risen in line with the cash rate after the earlier increases this year.

The minutes of the 28–29 September meeting put the aggregate burden in context: scheduled mortgage payments were about 10% of household disposable income, near their 2024 peak. Bullock said this share was similar to when the cash rate was 4.35%.

To illustrate what four rises could mean for an individual loan, consider a hypothetical example. It is not an RBA figure. It assumes a 30-year principal-and-interest loan of $300,000 with a variable rate of 5.60% before 2026's increases, and full pass-through of all four 25 basis point rises, taking the rate to 6.60%. On those assumptions, monthly repayments would rise from about $1,722 to about $1,916 — an increase of about $194 a month, of which about $49 a month relates to the September rise alone. Actual lender rates and loan terms vary.

The housing market adds a further dimension. The post-meeting statement said "housing prices have fallen in most capital cities", and the minutes noted that "the cumulative fall in housing prices is likely to be greater than had been assumed."

The worker's ledger

For workers, the effect of higher rates is less direct but still real. Bullock described the purpose of the decision bluntly: "Today's increase in interest rates is needed to slow the economy and return inflation to target." A slower economy tends to mean less demand for labour.

The unemployment rate rose to 4.6% in August 2026, according to the minutes, alongside higher participation. The RBA's August 2026 forecasts — finalised on 5 August, before the September rise — projected unemployment edging up to 4.8% by 2028, while hours-based underutilisation rises from 5.6% to 6.2%.

At the same time, workers are dealing with prices outpacing pay. "They're seeing real wage cuts," Bullock said. Headline CPI inflation was 4.0% over the year to August 2026, while the August SMP showed Wage Price Index growth of 3.3% for the June quarter.

The RBA was clear that it does not blame workers for inflation. Bullock said "there is no wage price spiral going on in Australia", and the minutes attributed above-target unit labour cost growth mainly to weak productivity rather than strong wages.

Bullock also tempered concerns about job losses: "a rise in the unemployment rate does not necessarily mean job losses." She noted that over a million jobs had been created over the past couple of years even as unemployment rose from 3.5%.

Cushions on both sides

The RBA's assessment is that, in aggregate, many households have room to absorb the pressure — though not all.

On the borrower side, the minutes recorded that arrears were low and loan impairments around historical lows. Owner-occupier borrowers with a cash flow shortfall made up under 2%, well below the 2023–24 peak. Median savings buffers ranged from just under one year of repayments for borrowers in the lowest income quintile to almost two years in the highest. Very few borrowers were in negative equity, and the RBA judged that would likely remain the case even if housing prices fell 20%.

Bullock pointed to a feature of many home loans: "a lot of people have a mortgage, and then they have an offset account, which sits in the background."

The October 2026 Financial Stability Review found that most mortgage holders should be able to cope with harder conditions even if house prices fell sharply, though there are some pockets of stress. The RBA's buffer figures also show that lower-income borrowers have thinner cushions than those on higher incomes.

For households with savings rather than debt, Kent's observation that deposit rates rose in line with the cash rate means the same decisions have a different effect. Businesses are in the frame as well: Bullock's opening acknowledgement extended to "businesses with loans", and the post-meeting statement noted that "growth in business investment and debt is strong".

Why the Board accepted the trade-off

The minutes show the Board weighed a 25 basis point increase against holding. The arguments for holding centred on downside risks to activity, which members judged modest. Developments "pointed to an increase in the risk of persistently elevated inflation", and members concluded "inflation remained too high."

Bullock's reasoning centred on keeping high inflation from becoming entrenched. She said the Board needed to "stop expectations for high inflation from becoming embedded in price-setting decisions across the economy". Whether the latest move is sufficient remains open: "Will it be enough? I don't know."

The bottom line

The September rise imposes costs on borrowers through higher repayments and on workers through a slowing labour market and, for now, real wage cuts. The RBA acknowledges both, while its minutes point to low arrears, savings buffers and limited negative equity as cushions for many — not all — households. Borrowers may wish to check their loan terms with their lender. The next CPI release is scheduled for 28 October and the next cash rate decision for 3 November.