The Reserve Bank’s next interest rate decision could hinge on a single inflation figure, with fresh employment data reducing the likelihood of a fifth rate hike this year but leaving the door open to further tightening.
Compare the Market Economic Director David “Kochie” Koch says the RBA faces an increasingly difficult balancing act between containing inflation and protecting employment, with next week’s inflation release potentially determining its next move.
The warning comes as Australian mortgage holders continue to absorb the impact of four 0.25 percentage point increases this year, adding hundreds of dollars to monthly repayments and placing further pressure on household borrowing capacity.
Shock employment figures showing a higher-than-expected rise in unemployment have prompted financial markets to sharply reduce their expectations of another rate increase.
“The RBA has two key objectives: keeping inflation under control and supporting employment,” Mr Koch said.
“As soon as those unemployment figures came out, the chances of a rate rise dropped from about 40% to 10%. Markets are saying the Reserve Bank may put inflation concerns aside to focus on jobs.
“But if we get a dirty inflation figure that comes in higher than expected, then I reckon the Reserve Bank is going to say, ‘All bets are off – we’ve got to focus on inflation,’ and there could be a rate rise.”
For the real estate industry, the next inflation reading will be particularly significant as agents navigate a market already affected by higher borrowing costs, tighter lending conditions and increasingly cautious buyers.
A further increase in the cash rate would place additional pressure on mortgage affordability and could further constrain the budgets of prospective purchasers, particularly those already borrowing close to their maximum capacity.
Koch identified trimmed mean inflation of 3.6 per cent as the critical figure to watch.
“The magic number to remember is 3.6% – that’s trimmed mean inflation. If it comes in higher than that, there will probably be an interest rate increase. If it’s around that mark or below, we might be safe for now.”
Mortgage repayments could rise by almost $7,000 a year
According to Compare the Market, mortgage holders with an average loan of approximately $731,000 are already paying an additional $464 each month following the four rate increases recorded this year.
A fifth 0.25 percentage point increase would add another $114 to monthly repayments, taking the cumulative increase to $578 a month, or almost $7,000 annually.
For borrowers with larger mortgages, the impact would be even more substantial.
Compare the Market calculates that a borrower with a $1 million mortgage would be paying an additional $799 each month following five consecutive 0.25 percentage point increases, compared with their repayments before the first increase.
On a $750,000 mortgage, the cumulative increase would reach $599 a month, while borrowers with a $500,000 loan would face an additional $399.
The calculations assume an owner-occupied variable-rate mortgage starting at 5.25 per cent, with a 30-year loan term and no ongoing fees. They do not account for the reduction in the outstanding loan balance over time.
The figures illustrate the financial pressure facing both existing homeowners and prospective buyers, with higher repayments potentially influencing purchasing decisions, price expectations and the ability of households to upgrade.
While the employment figures have provided some relief from expectations of an imminent rate rise, Koch warned that inflation remained capable of shifting the outlook.
He encouraged mortgage holders to review their existing arrangements rather than simply waiting for the Reserve Bank’s decision.
“The RBA decision is out of your control, but there may be levers you can pull with your bank or broker,” Mr Koch said.
“First, jump on your banking app and check your current rate. Then check your lender’s website to see what it is offering new customers and whether that deal matches yours.
“Next, take a look at a comparison website or call a broker to see what else is on offer. Even a reduction of 0.25 percentage points could be meaningful, especially if you still have a couple of decades left on your loan.
“Remember, you’re not just improving your cash flow by reducing your repayments now – you’re trying to cut the interest you pay over the life of your mortgage. Keeping on top of your rate could amount to tens of thousands of dollars in savings over the years you’re paying off that loan.”
For real estate professionals, the immediate question is whether the softer employment figures will be enough to keep interest rates on hold, or whether another uncomfortable inflation result will force the RBA to act.
With financial markets now pricing a substantially lower probability of another increase, next week’s inflation release could prove pivotal for buyer confidence and the direction of the housing market heading into the final months of 2026.