4 min read
QUICK SUMMARY
- THE DECISION: The RBA increased the cash rate by 25 basis points to 4.60 per cent on 29 September 2026.
- THE HIGH: It is the highest cash rate since late 2011 and the fourth increase this year.
- THE VOTE: The decision was unanimous, with a 9 to 0 vote.
- THE REASON: Inflation remains above target, while energy, technology and domestic capacity pressures are building.
- THE REPRICING: Variable commercial facilities typically reprice within weeks, while fixed facilities remain unchanged until expiry.
- THE NEXT TEST: September quarter inflation data is due on 30 September, with no certainty about what comes next.
What The RBA Actually Decided
The Reserve Bank of Australia’s Monetary Policy Board increased the cash rate target by 25 basis points, from 4.35 per cent to 4.60 per cent.
The decision was made on 29 September 2026. It is the fourth increase this year, following rate rises in February, March and May.
At 4.60 per cent, the cash rate is at its highest level since late 2011, making it a 15-year high. The vote was unanimous, with all nine Board members supporting the increase.
This was not a surprise decision. All four major banks had forecast the move, which means some of the increase had already been reflected in market pricing and certain fixed-rate offers. The announcement still matters, but it is confirmation of a higher funding environment rather than a completely unexpected shock.
The RBA said it would continue to do what it considers necessary to return inflation to target, including increasing the cash rate further if needed.
https://www.rba.gov.au/media-releases/2026/mr-26-27.html
Why The Board Moved
The RBA’s explanation was straightforward. Inflation remains elevated, and several upside risks identified in August are now materialising.
The conflict in the Middle East has broadened, pushing global energy prices much higher than assumed in the RBA’s August forecasts. Higher fuel and energy costs can flow through transport, production and operating expenses across many industries.
The Board also pointed to AI-related demand, which is driving rapid growth in global prices for technology-related goods. For businesses investing in hardware, systems or specialised equipment, that can make expansion more expensive even before finance costs are considered.
There is also continued pressure on domestic capacity. In plain English, demand is still running ahead of what parts of the economy can comfortably supply. The RBA’s liaison with businesses indicates that firms are experiencing cost pressures and are either increasing prices or considering doing so.
July’s inflation figures remain above the RBA’s target range. Headline CPI was running at 3.5 per cent annually, while the trimmed mean measure was 3.6 per cent. The target range is 2 to 3 per cent, with inflation expected to average around 2.5 per cent over the medium term.
The economy is not moving in one direction. Output growth slowed, but the June quarter was stronger than expected. Consumer spending is easing gradually, housing prices have fallen in most capital cities, and new housing loans have declined noticeably.
Labour market conditions have eased broadly as expected. At the same time, growth in business investment and debt remains strong. That combination helps explain why the Board is tightening financial conditions while acknowledging that activity has not stopped.
What It Costs Commercial Borrowers
For a simple illustration, assume the full 25 basis point increase is passed on to a variable facility and calculate the effect on an interest-only basis.
A 25 basis point increase adds approximately:
- $2,500 a year, or about $208 a month, for every $1 million of variable debt.
- $1,250 a year, or about $104 a month, on a $500,000 facility.
- $5,000 a year, or about $417 a month, on a $2 million facility.
These are interest-only illustrations. They do not include lender fees, changes in margins, line fees or any other facility costs.
On a principal and interest facility, repayments may move by a smaller amount over the same period because the loan is also amortising. That means the headline monthly figure understates the interest cost but overstates the repayment change.
The timing also matters. Variable commercial rates, overdrafts and working capital lines typically reprice within weeks rather than waiting for the next annual review. The exact timing and amount remain a decision for each lender.
Fixed-rate facilities are generally unaffected until the fixed period expires. However, the eventual refinance or rollover will be assessed in the rate environment that exists at that time.
For Perth owner-occupiers, the underlying property market remains part of the equation. WA remains Australia’s tightest industrial market, with vacancy around 2.2 per cent and prime net rents near $175 per square metre. The question is rarely whether the asset is sound. It is whether the funding still stacks up at a higher rate.
The Bits Most Borrowers Miss
First, lenders may reassess serviceability at the higher rate. That can reduce how much you are able to borrow for the next acquisition, refinance or equipment purchase, even if your current facility remains manageable.
Second, valuations and loan-to-value ratio bands can move at the same time. A conservative valuation combined with a higher interest-rate assessment can create a double squeeze, particularly where an owner is relying on released equity for the next purchase.
Third, covenants and annual reviews may receive more attention as lenders increase impairment provisions or become more selective about risk. That does not mean lending appetite has disappeared. The RBA observed that business investment and debt growth remain strong.
It does mean pricing, documentation and credit testing may be less forgiving. A lender-ready application now needs current financial statements, realistic forecasts, clear debt schedules and a sensible explanation of how the business performs under stress.
Five Moves In The Next 30 Days
STEP 1: KNOW WHAT YOU ARE ACTUALLY PAYING: Separate every facility into variable and fixed debt. Record the current rate, lender margin, balance, repayment type and the date each facility reprices or expires.
STEP 2: DO THE MATHS ON YOUR WORST CASE: Stress your variable facilities at 4.85 per cent, not only 4.60 per cent. That is the level some economists now expect, including BetaShares chief economist David Bassanese, who has nominated another 25 basis point rise on Melbourne Cup Day as his base case.
STEP 3: TALK TO LENDERS BEFORE THEY TALK TO YOU: If a refinance, restructure or limit review is likely, start now. An application prepared before a formal review gives you more time to compare lenders and address documentation gaps.
STEP 4: PROTECT WORKING CAPITAL FIRST: Do not let a rate increase quietly consume the buffer your business relies on for wages, stock, tax and supplier payments. A properly structured working capital facility can be useful insurance against timing gaps.
https://baselinefin.com.au/working-capital/
STEP 5: DIARISE YOUR FIXED RATE EXPIRIES: Every fixed-rate expiry in the next 18 months is a decision point. Review the options early rather than waiting until the lender’s rollover offer lands in your inbox.
The Risks And The Honest Picture
Rates may rise again. The Board has kept that option open, and another increase to 4.85 per cent would add a further $2,500 a year for each $1 million of interest-only variable debt, assuming the full increase is passed through.
Fixing everything in a panic can also be expensive if the cycle turns. A fixed rate may provide certainty, but it can limit flexibility, involve break costs and leave you paying more if variable rates later fall.
There is also a demand risk. EY Oceania chief economist Cherelle Murphy has noted that consumer sentiment is extremely low and falling house prices are making many families feel less wealthy. For businesses that rely on discretionary spending, the rate increase is not only a cost story. It can become a revenue story as well.
Cotality estimates that the four rate rises this year have reduced Australians’ borrowing capacity by almost $90,000 on average. That matters for property investors and owner-occupiers because it can affect how much buyers are able to bid, even where the property fundamentals remain strong.
The right response is not automatically to fix, refinance or borrow less. It is to test the structure against your goals, cash flow and risk appetite.
What To Watch Next
The Australian Bureau of Statistics will release September quarter inflation data on 30 September, one day after the RBA decision.
That data will help shape expectations for the next meeting, but no one knows the full path from here. Energy prices, global conditions, business costs, employment and household demand can all change the outlook.
For a business owner, the useful response is to prepare for more than one outcome. Know what another increase would cost, understand when your facilities reprice and make sure your next funding decision is based on business fundamentals rather than headlines.
TERMS TO KNOW
- Cash rate target: The interest rate set by the RBA for overnight transactions between financial institutions. It influences broader borrowing costs.
- Basis point: One hundredth of a percentage point. A 25 basis point increase equals 0.25 percentage points.
- Variable rate facility: A loan or credit facility where the interest rate can change during the term.
- Fixed rate expiry: The date a fixed-rate period ends and the facility is usually reassessed, rolled over or refinanced.
- Serviceability assessment: A lender’s test of whether the borrower can meet repayments, usually at a higher assessment rate than the current rate.
THE BASELINE DIFFERENCE
Baseline Finance provides jargon-free advice, transparent lender comparisons and one point of contact from application through to settlement.
Our Strategic Funding Plan gives you a benchmarked roadmap for your lending position and can be delivered within 7 days.
https://baselinefin.com.au/commercial-property-loans/
When you are reviewing commercial property finance options, we focus on the structure behind the rate, not just the rate itself.
CONTACT BASELINE FINANCE
Phone: 08 6108 3925
