RBA Hikes Rates to 4.35%, Then Signals Room to Pause

The Reserve Bank raised the cash rate by 25 basis points to 4.35% yesterday, the third consecutive increase since late 2025. But it was what Governor Michele Bullock said afterwards that mattered more than the number itself.

Bullock described the rate as now sitting in "a bit restrictive" territory and said the hikes had bought the board "space" to watch how things unfold. In central bank language, that is as close to "we might be done" as you will hear without actually hearing it.

What shifted

The hike itself was expected. The shift in tone was not. For months, the RBA's message has been that inflation risks outweigh everything else. Yesterday, Bullock acknowledged the board may have overweighted those risks against the reality that household spending is pulling back harder than forecast.

That admission matters. It means the board is starting to weigh the damage of further hikes against the inflation they are trying to control. The major banks are reading it the same way: ANZ, CBA, and NAB all expect the RBA to hold in June. Westpac is the outlier, forecasting two more increases through August.

The backdrop

The trigger for the hiking cycle has been the Iran-linked oil shock, which pushed fuel and transport costs up across the economy. Bullock warned that these "second-round effects" are spreading beyond energy into the prices of goods and services more broadly. The RBA's current forecast has inflation peaking around 4.8% by mid-year, not falling below 3% until June 2027.

For anyone on a variable-rate loan, this hike adds roughly $50 to $70 per month on a $500,000 balance, depending on the lender and product. For business owners carrying equipment finance or a line of credit, the compounding effect of three hikes in a row hits harder. Each one has added friction to cash flow, purchasing decisions, and hiring plans.

What to do

The signal here is not "rates are done." It is "the pace is changing." That is a different kind of information, and it calls for a different response than either panic or patience.

If you are on a variable rate, model your repayments at 4.35% against what you were paying six months ago. If the gap surprises you, that is useful information about how much room you actually have in your budget. If you have been deferring a vehicle or equipment purchase waiting for rates to drop, the pause signal means the better question is not "when will rates fall" but "can I make this work at today's rate, knowing it is unlikely to go much higher?"

For business owners approaching EOFY, the combination of a potential rate plateau and the instant asset write-off creates a window worth modelling. Not because rates will definitely hold, but because the cost of waiting for certainty is often higher than the cost of acting on a reasonable assumption.

If you locked in a fixed rate two or three years ago, check when it expires. You could be rolling into a variable rate 100 to 150 basis points higher than what you locked in. That is not a surprise you want to discover on your statement.

This article is general information only and is not financial advice.