Australia's Reserve Bank has lifted its cash rate to levels not seen in 15 years, yet household spending has accelerated to nearly 7% annually compared with a year ago, according to the Australian Bureau of Statistics. The four rate rises in 2026 have pushed up mortgage default risks and consumer confidence has fallen, but they have not dampened spending as economists expected.
The Reserve Bank raises rates to discourage spending and curb inflation, which reached 4% by August. However, economists suggest this year's rate hikes have not yet fully worked their way through the economy. The Guardian reported that if rate rises prove less effective than before, the central bank may need to raise rates even further.
Several factors explain the resilience. Australians now hold nearly $350bn in offset account balances, giving borrowers what Warren Hogan, managing director of EQ Economics, describes as "massive buffers" against higher repayments. Additionally, one in three households own their homes debt-free and benefit from higher interest on savings, while more Australians are renters unaffected by mortgage rate rises. The Reserve Bank's data shows only 2% of borrowers cannot afford essential expenses.
The currency channel through which rates typically work has also weakened. The Australian dollar rose from 65 US cents in November 2025 to a peak of 72 cents in May 2026 following the first three rate rises, but has since fallen to 69 cents. This limits the benefit of cheaper imports that higher rates normally deliver. Markets currently expect only one more rate rise, not before May 2027.