RBA hikes 25bp to 4.35% in 8-1 vote. The May SoMP pencils in 4.70% by year-end

This article is general information only and does not constitute financial or tax advice. Consult a qualified tax professional for advice specific to your situation.

The Reserve Bank Monetary Policy Board lifted the cash rate by 25 basis points to 4.35% on Tuesday afternoon. That number was the consensus call, and the Westpac IQ summary of the meeting describes it as the move "to head off rising inflation expectations". For Australian property investors, the surprise was not the headline rate. It was everything underneath it.

The board vote went 8-1 in favour of hiking, a sharp shift from the 5-4 split that delivered the March move. The accompanying Statement on Monetary Policy nudged the cash rate technical assumption to 4.70% by year-end, 50 basis points hotter than the February SoMP path. And by 6pm Tuesday all four major banks had confirmed full 25 basis point pass-throughs to variable rates, effective May 15.

If you read our May 5 preview, you already had Scenario 2 (one hike to 4.35%) priced in as the consensus base case. The May SoMP has now made Scenario 3 (4.60% by Q3) the RBA's own working assumption, with one extra hike on top of that. Here is what changed, what it costs at typical investor loan sizes, and what the data already shows about prices and rents in April.

The Decision and the Vote

The cash rate move from 4.10% to 4.35% is the third hike of 2026, following February's lift from 3.60% to 3.85% and March's 3.85% to 4.10%. The cumulative tightening from the start of the year now sits at 75 basis points.

The vote split is the more interesting number. According to the board statement and the coverage from SBS, eight members voted to lift the cash rate by 25 basis points to 4.35%, with one member voting to leave it unchanged at 4.10%. In March the same decision went 5-4. The shift to a clear 8-1 majority in six weeks tells you the doves on the board found very little they could lean on after the March CPI print.

Governor Michele Bullock's post-meeting media conference framed the third hike as dealing with "the high inflation issue that already existed before the conflict in the Middle East started", and said three hikes "gives space" for the board to see how the conflict plays out. The phrasing matters: it does not commit to another hike at the June meeting, but it does not rule one out either.

The SoMP Path Just Moved 50 Basis Points

The big story for investors is sitting in the May Statement on Monetary Policy outlook chapter, not in the headline cash rate.

The SoMP uses a technical assumption based on market pricing for where the cash rate will sit over the forecast horizon. That is the path the RBA's economic forecasts assume the cash rate will follow. In the May SoMP that path peaks at 4.70% by the end of 2026 and stays there well into 2027, before easing back. In the February SoMP the equivalent path peaked at 4.20%.

In other words, the RBA's own working assumption now bakes in another 35 basis points of tightening on top of the May 5 hike. That is 50 basis points hotter than the February pencilling, and it is the result of the inflation forecasts inside the SoMP being upgraded across the board:

• Headline inflation is forecast to peak at 4.8% in the June quarter 2026.
• Underlying inflation (the trimmed mean) stays above 3% until mid-2027.
• Trimmed mean only returns to the 2.5% midpoint of the target band by mid-2028.
• Unemployment is forecast to drift up to 4.7% by mid-2028 as the lagged effects of tightening flow through.
• GDP growth sits below estimates of potential growth across the forecast period.

The shape of that path is the textbook stagflation forecast that the World Socialist Web Site coverage seized on within hours of the release. From an investor cash flow perspective, the practical reading is simpler: the RBA is telling you they expect to deliver, or at least allow markets to price, more tightening than the consensus had penned in before the meeting.

That puts the Westpac call (terminal 4.85% by August) much closer to the RBA's own assumed path than the CBA, NAB and ANZ "one and done at 4.35%" view. The hold camp is now arguing against the RBA's published forecast, which is a structurally weaker position than it was a week ago.

CommBank's house view is that the RBA "has room to pause after May rate hike", noting Bullock's "gives space" language and the lagged transmission of three hikes into household budgets. CBA economists still expect a hold from here, but they now sit on the dovish end of a market that has clearly shifted.

What the Big 4 Did Within Hours

Variable rate pass-throughs landed faster this cycle than at any point in 2026. Within hours of the 2:30pm decision:

• CBA confirmed a full 25bp lift to variable home loan rates, effective May 15.
• NAB matched, full 25bp pass-through, effective May 15.
• ANZ matched, full 25bp pass-through, effective May 15.
• Westpac matched, full 25bp pass-through across owner-occupier and investor variable loans, effective May 15.

Investor variable rates typically sit around 30 basis points higher than owner-occupier pricing. With Big 4 owner-occupier headline variable rates landing in the 6.40% to 6.65% range from May 15, realistic investor variable pricing across the Big 4 is now between roughly 6.70% and 7.00%, depending on lender, loan-to-value ratio, and product features.

The first repayment at the new rate typically lands four to six weeks after the effective date, so for the bulk of investors the cash flow hit shows up on June statements. Any extra interest paid in June 2026 is captured in your 2025-26 tax return as a deductible expense, which is worth tracking carefully if you are running tight at EOFY.

What Each Loan Size Looks Like Now

The numbers below assume a variable rate investor loan, principal and interest, 30 years remaining, with the 25bp May hike passed through in full from a starting variable rate of 6.50%. They show the cumulative monthly cash flow impact of three scenarios from today: the May hike alone, the SoMP path to 4.70%, and the Westpac call to 4.85%.

$500,000 investor loan

• May hike (25bp to 4.35%): roughly $80 more per month, or $960 per year.
• SoMP path (60bp to 4.70%): roughly $193 more per month, or $2,316 per year.
• Westpac call (75bp to 4.85%): roughly $241 more per month, or $2,892 per year.

$750,000 investor loan

• May hike: roughly $120 more per month, or $1,440 per year.
• SoMP path: roughly $290 more per month, or $3,480 per year.
• Westpac call: roughly $362 more per month, or $4,344 per year.

$1,000,000 investor loan

• May hike: roughly $161 more per month, or $1,932 per year.
• SoMP path: roughly $387 more per month, or $4,644 per year.
• Westpac call: roughly $483 more per month, or $5,796 per year.

These are the gross repayment movements before tax. The deductibility of the higher interest softens the net cash flow hit by 30 to 47 cents on every additional dollar, depending on your marginal bracket.

To run your own numbers against your specific loan balance, rate and term, the mortgage repayment calculator lets you compare any two rates side by side. For investors holding multiple properties, modelling each loan separately is worth the 10 minutes.

What CoreLogic April Says About the Demand Side

The other release that matters this week is the CoreLogic (Cotality) Home Value Index for April, which arrived just before the RBA decision. Highlights:

• National HVI: up 0.3% in April, the slowest monthly pace in nearly a year. March printed 0.6%.
• Sydney: down 0.1%. Melbourne: down 0.2%.
• Brisbane: up 1.8%. Adelaide: up 1.2%. Perth: up 2.5%.
• Quarterly: national values rose 2.1% over the three months to April.
• Annual: 9.9% growth to March, the fastest 12-month pace since June 2022, slowing into April.
• Vacancy rate: 1.6% nationally in March. Gross rental yields: 3.57%.

The pattern looks like the two-speed property market that opened the year, but the larger eastern capitals are now showing the first cracks under the weight of three hikes plus rising fixed rate pricing. Sydney and Melbourne have flipped negative on a monthly basis, while Brisbane, Adelaide and Perth are still posting growth, just slower than the first quarter.

For landlords, the rent side of the equation is still doing the heavy lifting. A 1.6% vacancy rate is structurally tight, and rising holding costs (interest, electricity, insurance, council rates) are flowing into rent reviews where tenancy law allows. State-by-state, the rules on frequency and notice period vary, which our guides for NSW, Victoria and Queensland cover in detail.

What to Do This Week

The RBA decision is settled. The next decision points are yours, not the board's.

Confirm your new variable rate from May 15. Your lender should have already sent the notification. If not, log in to your banking portal or call them. The headline rate move is one number, but lenders often adjust comparison rate features (offset balances, redraw caveats, package fees) at the same time. Read the change notice, do not skim it.

Re-run your cash flow at 4.70%. The RBA's own assumption is now there. If your property is comfortably positive at 4.35% but tips into negative cash flow at 4.70%, that conversation is worth having with yourself or your accountant before June rather than after.

Get a fresh fixed rate quote. Big 4 investor fixed rates are now sitting in the 6.20% to 6.60% range across 1- to 3-year terms following the April fixed rate moves. Pricing has already absorbed the May hike, so a fix today buys certainty rather than a sharp discount, but it caps your downside if the SoMP path delivers in full. A split loan keeps optionality if you want both protection and flexibility.

Lock in your records to April 30 cleanly. Every dollar of additional interest from May 15 is deductible in the 2025-26 year (for the partial month) and the 2026-27 year (full year). Track it from day one of the new rate. The closer you are to up-to-date going into June, the less reconstruction work at EOFY. The landlord expenses guide and the EOFY checklist are worth working through if you have not already.

Sense-check your rent review window. A tight 1.6% vacancy rate plus rising deductible costs is the textbook setup for a defensible review. Whether you can act now depends on lease term and state-specific notice rules, which our when to raise the rent guide unpacks.

The Bottom Line

The May 5 hike to 4.35% delivered the consensus call. The May SoMP delivered something different: the RBA's own forecast now assumes a cash rate path that puts the consensus hold camp on the wrong side of the central bank's published projections. Headline inflation is forecast to peak at 4.8% in the June quarter, the trimmed mean stays sticky into 2027, and the cash rate path implied by markets and used by the RBA reaches 4.70% by year-end.

For a typical Australian investor, that means the May 15 variable rate increase is best treated as a starting point, not an end point. The case for stress-testing your portfolio at 4.70%, and for deciding whether you want certainty (a fix) or flexibility (variable), has just been written for you.

The next RBA meeting is scheduled for June 16-17, with the Q1 GDP release on June 4 and the May labour force release on June 19 likely to dominate the data picture between now and then. Bullock's "gives space" line gives the board cover to hold in June, but it does not foreclose another move if the data refuses to cool.

Frequently Asked Questions

What did the RBA decide on May 5, 2026?

The RBA Monetary Policy Board lifted the cash rate by 25 basis points to 4.35% in an 8-1 vote. It is the third hike of 2026, after February (3.60% to 3.85%) and March (3.85% to 4.10%), and takes the cash rate to its highest level since late 2024.

What does the May 2026 Statement on Monetary Policy forecast for the cash rate?

The May SoMP technical assumption uses a market-implied path that has the cash rate reaching 4.70% by the end of 2026. That is a 60 basis point lift from the current 4.10%, or another 35 basis points on top of the May 5 hike. The February SoMP assumed 4.20% by year-end, so the bar has moved sharply higher in three months.

When do Big 4 variable rate hikes take effect?

All four major banks (CBA, NAB, ANZ, Westpac) announced full 25 basis point pass-throughs within hours of the May 5 decision. Variable rate increases take effect from May 15, 2026 across the Big 4. The first repayment at the new rate typically lands four to six weeks later, depending on billing cycle, so most investors will feel it on June statements.

How much will the May 5 hike add to a $750,000 investor mortgage?

On a $750,000 variable rate investor loan with 30 years remaining at a starting rate of 6.50%, the 25 basis point hike to 6.75% adds roughly $120 per month, or about $1,440 per year. If the SoMP path to 4.70% plays out in full, the cumulative increase from today is closer to $290 per month.

Why did the RBA vote shift from 5-4 in March to 8-1 in May?

The March CPI release printing at 4.6% headline, with sticky housing inflation at 6.5% and the trimmed mean held at 3.3%, gave the doves on the board very little to lean on. Governor Bullock has flagged that the second-round effects of the Iran-driven fuel shock are now her top concern, and the broader board majority reflects that the inflation problem looks more entrenched than it did six weeks ago.

Is the RBA cash rate hike tax-deductible for landlords?

Higher mortgage interest is fully tax-deductible against rental income on an investment property. The deduction is a fraction of the cost paid (between 30 and 47 cents per extra dollar depending on your marginal tax bracket), so cash flow tightens even when the tax bill softens. Track the higher interest from May 15 onward to capture the deduction cleanly at EOFY.

When the rate moves, your repayment moves with it, and the gap between forecasted cash flow and actual cash flow widens fast. Propkt tracks the interest charge, the repayment changes, and every other deductible expense across each of your properties, so you walk into your accountant's office in July with the actual numbers, not a rough estimate. Get started free.