Three More Rate Hikes Predicted as RBA Poised to Lift Cash Rate to 4.35%

Key facts

• Wilson Asset Management's Anna Milne says the market is pricing three more rate hikes from the RBA, including the May 5 move.
• Money markets assign an 80% probability to a 25-basis-point rate rise at the May 4-5 RBA meeting.
• The cash rate would return to 4.35% if the May hike occurs, reversing the three cuts of 2025.
• An Australian on the average full-time wage of $106,950 loses $11,700 in borrowing capacity per rate rise.
• A couple both earning $106,950 would see their borrowing capacity fall by $73,100 after the February, March and expected May hikes.
• Headline inflation jumped 1.1% in the March quarter, pushing the annual CPI to 4.6% — the highest since September 2023.
• Surging oil prices were the main driver of the quarterly inflation spike, according to the Australian Bureau of Statistics.

A Third Straight Rate Rise Looms

The Reserve Bank of Australia is expected to raise interest rates for the third consecutive time at its May 4-5 meeting, with money markets pricing an 80 per cent chance of a 25-basis-point increase. If delivered, the move would lift the cash rate to 4.35 per cent, completely reversing the three rate cuts implemented in 2025. Wilson Asset Management's Anna Milne said the market is now pricing three more rate hikes from the RBA, including the one scheduled for May 5. The central bank's tightening cycle has already surprised many economists, and the latest inflation data suggests further pressure may be warranted.

Inflation Surge Fuels Hawkish Bets

Official figures from the Australian Bureau of Statistics revealed that headline inflation jumped 1.1 per cent in the March quarter, largely driven by surging oil prices that have hammered motorists. The Consumer Price Index rose 4.6 per cent in the 12 months to March 2026, marking Australia's highest inflation since September 2023 when the economy was rebounding after the Covid-19 pandemic. The quarterly spike has reinforced expectations that the RBA will act again in May. The central bank has repeatedly stated it will do what is necessary to bring inflation back within its target band, and the latest data suggests price pressures remain stubbornly elevated.

First-Home Buyers Bear the Brunt

Fresh figures from comparison site Canstar show that first-home buyers are being hammered by the successive rate hikes. An Australian earning the average full-time wage of $106,950 sees their borrowing capacity fall by $11,700 with each rate rise. For a couple where both partners earn that salary, the three rate hikes — February, March and the expected May increase — would reduce their borrowing capacity by a total of $73,100. Canstar data insights director Sally Tindall said the rate hikes have taken a serious bite out of home-buying budgets for those borrowing at capacity. "There could be more pain to come as early as Tuesday," she added, referring to the RBA's May decision.

Property Prices Begin to Cool

In a silver lining for prospective buyers, the pace of property price growth has started to slow, partly as a result of the back-to-back interest rate increases. The RBA's tightening is beginning to dampen demand, which could eventually improve affordability for those who can still secure financing. However, the reduction in borrowing capacity means many first-home buyers are being priced out of the market entirely, even as property prices moderate. The dual impact of higher rates and reduced borrowing power is creating a particularly challenging environment for those trying to break into the housing market.

Outlook: More Pain Ahead

With the market pricing three additional rate hikes beyond the expected May move, the RBA's tightening cycle appears far from over. Anna Milne's assessment that three more increases are priced in suggests the cash rate could rise well above 4.35 per cent in the coming months. For borrowers, particularly first-home buyers, the trajectory spells continued erosion of purchasing power. The RBA faces a delicate balancing act: containing inflation without triggering a sharp economic slowdown. The next few months will reveal whether the central bank can achieve that balance, or whether the housing market will face an even deeper squeeze.

The bottom line

• The RBA is expected to raise rates by 25 basis points on May 4-5, with an 80% probability priced by money markets.
• Three more rate hikes are currently priced in.
• A couple on average full-time wages loses $73,100 in borrowing capacity after three rate rises.
• Annual CPI hit 4.6% in March 2026, the highest since September 2023, driven by oil prices.
• Property price growth is slowing, offering a partial offset to rising mortgage costs.
• The cash rate would return to 4.35% after the May hike, reversing all 2025 cuts.