Why Did the RBA Raise Rates to 4.60 Percent?

The Reserve Bank has lifted the cash rate again, taking it to 4.60 percent as of 30 September 2026. That is the fourth rise this year, a full percentage point since January, and the highest the cash rate has been since 2011. This one was unanimous: all nine Board members voted for it.

If you have a mortgage, the headline is straightforward. On an average loan size of $736,259, Finder estimated that the first three rises of 2026 had already added around $2,657 a year to repayments, and that was before September. About 297,000 mortgagors told Finder they would default if they were hit with one or two more.

So far, that is the part everyone agrees on. The cost has gone up and households are feeling it. The interesting question is the one no one in Canberra seems keen to answer plainly. Why?

The official answer

The Reserve Bank Governor, Michele Bullock, points to two things. The first is sticky inflation. The headline Consumer Price Index was 4.0 percent in the year to August 2026, up from 3.5 percent in July. The trimmed mean, which is the measure the RBA actually targets, held at 3.6 percent for a third straight month, still above the 2 to 3 percent band. Housing was the largest single contributor, up 5.7 percent (ABS, released 30 September 2026).

The second is global energy prices. In its September statement the Board said the conflict in the Middle East had broadened and that global energy prices were now much higher than it had assumed in its August forecasts. Earlier in the year, petrol had already jumped 32.8 percent in a single month, with transport costs up 9.2 percent. Treasurer Jim Chalmers has been blunt about the cause, telling Bloomberg that the fallout from the war is "already serious and it risks becoming severe". His own Treasury modelling suggested inflation could reach 5 percent if oil stays elevated.

Bullock was direct afterwards. Higher rates are needed to bring inflation back to target, and the Board would raise again if it had to.

When pressed on whether government spending was adding to the problem, Bullock did not deny it. Her line, repeated through 2026, is that public spending is not the sole factor pushing inflation higher, and that when the economy is already running into capacity limits, additional public spending adds to total demand and makes the Bank's job harder. Earlier in the year, asked to attribute the revised forecast, she said the key driver "is not fiscal policy" but "private demand", and when questioned again she said, "I really don't think I've got anything more to add on this."

Read that carefully, because "not the sole factor" is not a no. It is an acknowledgement with the volume turned down.

Reading between the lines

There is another reading. It is not popular, and it does not get much airtime, but the data behind it is publicly available.

Mark Bouris, the chairman of Yellow Brick Road, has been making the case for over a year. His view is mechanical rather than political.

You can decide for yourself whether that holds up. Here is what the publicly available numbers say.

The federal public service is at a record high

The Australian Public Service Commission's own data shows 198,529 staff at 30 June 2025. That is an increase of 13,671 in a single year, or 7 percent. It exceeds the 1987 record. The 2025 to 2026 federal budget projects another 4,199 on top of that.

The total Australian public sector employs roughly 2.6 million people

That is the ABS Public Sector Employment figure for 2024 to 2025, covering Commonwealth, state, and local governments. State governments alone employ close to two million Australians. The total public sector wage bill came in at $249.5 billion in 2024 to 2025, up 7.6 percent in twelve months. To be clear, this counts government employees. NDIS recipients and most NDIS support workers are not in this number.

The NDIS has blown past its original projection by 72 percent

In 2023 to 2024, the NDIS cost $42 billion. That was 72 percent more than the 2020 to 2021 Budget had projected for the same year. The scheme will spend $46.2 billion this year and is projected to reach $58 billion by 2028. Average annual growth was 24 percent for the four years to 2023 to 2024. The Parliamentary Budget Office has flagged it as one of the largest structural pressures on the federal budget.

Federal spending today is at a high-water mark, and still climbing

Look at the most recent Budget. Total federal expenditure in 2024 to 2025 is $734 billion, or 26.6 percent of GDP. That is up $43 billion in a single year compared with 2023 to 2024, a 6.2 percent nominal increase. The public sector wage bill alone reached $249.5 billion in 2024 to 2025, up 7.6 percent year on year (ABS). For historical context, Treasury's own paper notes that across the 2002 to 2013 decade, federal spending grew 27 percent faster than GDP, with the post-GFC stretch running 47 percent faster. That is the pattern that produced today's elevated baseline.

The 10-year picture: nearly double the spend

The clearest way to see this is to look at our own ledger over a decade. In 2014 to 2015, the Australian Government's Final Budget Outcome reported total federal expenses of $417.9 billion, or 25.9 percent of GDP. The 2024 to 2025 Budget reports $734 billion, or 26.6 percent of GDP. As a share of the economy the line has barely moved. In dollar terms it has nearly doubled. The composition has changed too. The NDIS line has gone from effectively zero to $46 billion. The renewables and energy transition line has gone from a modest grants program to $22.7 billion a year. Public sector wages have gone from one figure to $249.5 billion.

None of those numbers are contested. They come from the APSC, the ABS, the PBO, and Treasury itself. What is contested is what they mean.

If you take the Bullock view, government is just one component of aggregate demand, the size of it does not really matter, and the lever to pull is interest rates. If you take the Bouris view, public spending of that scale puts a floor under demand that interest rates have to fight harder and harder to push down. The household with a mortgage gets the bill either way.

The one number nobody stress-tests

Here is the part that should bother everybody, whatever they think of the politics.

Every other actor in this economy is tested. If you want a loan, the bank must assess you at your actual rate plus three percentage points, so a borrower on 6.5 percent is measured against 9.5 percent to prove they could survive it. A business is audited. The Reserve Bank has a published inflation target, it is hauled in front of Senate estimates, and its Governor has to sit there and answer for missing it.

Government spending is the one input in the equation that is never run through anything equivalent. Nobody models what the next spending decision does to the inflation target before it is made, and nobody is required to.

To be fair about it, the money is audited. That is the job of the Australian National Audit Office, and the Auditor-General does it properly. What is worth knowing is what happened to that office while the spending it checks kept growing.

The 2026-27 Budget gave the ANAO $99.8 million in annual departmental appropriations. Measured against inflation, that is a real reduction of roughly 2.9 percent on the year before. The Joint Committee of Public Accounts and Audit has said the office's funding "continues to be of serious concern" and that it "threatens the robustness of the vital audit function". The Auditor-General has warned more than once that the position is unsustainable.

So the watchdog's budget went backwards in real terms, in the same year the headcount it watches hit a record and the wage bill grew 7.6 percent.

None of that is an accusation of anything improper. It is an observation about where the scrutiny actually points. The household is stress-tested at three percent above its rate. The spending is not stress-tested against the inflation target at all, and the body that checks it was handed less to do it with.

And it matters to your mortgage for a simple reason. There are only two levers on demand in this country. One of them is spending and it is not being pulled. The other is interest rates, and it lands entirely on the people with a loan.

Where the money is, and isn't

There is a flip side to the spending question that gets even less airtime. While the household with a mortgage is asked to absorb another $2,657 a year, the government is writing very different cheques somewhere else.

Take gas

Australia is one of the world's largest LNG exporters. Around 70 percent of that gas is extracted from Commonwealth waters, which means the federal government owns the resource. In 2024 to 2025, the federal Petroleum Resource Rent Tax collected just $1.42 billion. To put that in perspective, Norway taxes its oil and gas exports at 78 percent on profits and has built a sovereign wealth fund now worth roughly $1.9 trillion. The Australia Institute estimates the total Australian public take from our gas is around 7.7 percent of what Norway extracts from comparable resources.

Take green spending

The 2024 to 2025 federal budget allocated $22.7 billion to renewable energy, including $13.7 billion in production tax credits for hydrogen and processed critical minerals. The Capacity Investment Scheme is targeting $65 billion in clean-energy investment that the public will underwrite in part. Over the ten years to 2022 to 2023, Australian taxpayers and electricity customers paid an estimated $29 billion in renewable subsidies, averaging $2.6 billion a year. Whether you support those programs or not is a separate question. The point here is the size and direction of the cheque.

Stack the two side by side. The government collects $1.42 billion in resource rent from a 70 percent share of the country's largest export commodity, then writes a $22.7 billion cheque to a different industry the same year. When inflation runs hot, it asks the household with a mortgage to absorb the difference through higher rates.

And much of the green spend has not landed

The renewables ledger is not a clean ledger. A growing list of flagship green-energy projects, backed by hundreds of millions or billions in commitments, have collapsed, been deferred, or been quietly archived in the past 18 months. Below are four of the most recent examples, all sourced from non-mainstream specialist outlets.

Bouris's "they never really stopped" line points at one half of that picture. The half he doesn't quite get into is who is paying. The Reserve Bank's blunt instrument, monetary policy, lands hardest on the third of households that carry a mortgage. The choices about where the public dollar goes, and where it doesn't, are made somewhere else.

What this means for your home and your rent

Rates have done what rates do, and the market has turned with them.

Cotality's September 2026 Home Value Index has national dwelling values down 1.1 percent for the month and flat over the year, sitting 5.2 percent below the March 2026 peak. That's the sixth consecutive monthly fall.

The national number hides a market pulling in two directions. Sydney is down 7.0 percent over twelve months and Melbourne 6.2 percent. Across the same year Perth is up 10.1 percent, Hobart 7.0 percent, Adelaide 6.5 percent and Brisbane 5.9 percent. Regional Australia as a whole is up 5.6 percent while the combined capitals are down 1.8 percent.

Different markets cycle at different times. That's not a slogan, it's what the numbers actually do. Perth, Brisbane and Adelaide have each come off a peak they only reached in May, after a run that more than doubled values over a decade.

Activity has cooled faster than prices. Sales over the three months to September ran 19.1 percent below the same period last year. New listings across the capitals were 9.2 percent lower than a year ago, yet total stock on market sat 23.1 percent higher, because what's listed is taking longer to clear. For anyone buying, that combination is the most negotiating room there has been in three years.

The rental side is where this gets pointed. National vacancy has loosened to 2.0 percent, up from a record low of 1.5 percent in February, but still well under the pre-COVID decade average of 3.3 percent. Gross rental yields have climbed to 3.85 percent nationally, the highest since August 2019. When borrowing costs rise and supply stays tight, investors don't absorb the cost, they pass it on. First home buyers who planned to buy this year keep renting, and the queue at every open inspection stays long.

So the practical effect of this rate cycle, on the ground, looks like softer prices in the most stretched capitals, a shallower pullback in the smaller ones that spent the last decade catching up, and rents that keep grinding higher almost everywhere. That's a harder story to write a headline about than "property crash", which is probably why you're not seeing it written.

What to actually do

Our friends at Professional Lending Solutions put it well in a client note earlier this year, and it has aged well.

That is the practical bit. If your rate starts with a six or a seven, or you have not reviewed your loan in two years, this is the moment to look at it. Hikes get passed on within weeks. Refinances do not happen on their own.

The bigger picture is what we keep coming back to in this column. Time in the market beats timing the market, and skip the BBQ advice. The macro picture is loud, the headlines are louder, and most of the people offering opinions over a sausage on Sunday are not the ones writing the cheques on Monday. Look at your own numbers, and look at what is actually selling in your suburb (not what is leading the news). Then read between the lines on who is asking you to absorb the cost of decisions you did not make.

The next RBA decision lands on 3 November. The bigger date is 1 July 2027, when the Budget's capital gains and negative gearing changes take effect, and that one is already moving investor behaviour well ahead of time. We will keep you posted.