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Another rate rise: How to cope + RBA's warning

Another rate rise: How to cope + RBA's warning

My Money Digest - 08 May 2026

David Koch
May 08, 2026

Hi everyone,

I’m disappointed with the Reserve Bank decision to lift interest rates yet again. It is putting so much strain on households and business ... There is a very real possibility that we’re headed for an economic recession.

Another interest rate hike ... and more to come

It was disappointing that the Reserve Bank decided to lift official interest rates for a third straight time to 4.35 per cent - and added another $120 to the monthly repayment of an average home loan.

Along with the extra $100 (or so) a month needed to fill a car with petrol, about $450 is now being drained from household budgets every month - in after-tax dollars. To cover that extra cost, you would need to earn roughly $750 in pre-tax income.

No wonder consumer confidence and business confidence has plunged. Consumers going into the bunker and not spending, while businesses go into the bunker and stop investing or shed jobs, is a crushing combination for the economy.

There is a very real risk these rate cuts could tip the economy into recession ... which is a horrible stress for people to deal with.

My view was that the RBA should have paused to see what is in next week’s federal budget. The RBA is well aware of what the budget can do to inflation. Michele Bullock delivered a stinging warning about the mooted cash splash for voters to help with the cost of living.

In effect, she said at her press conference that if state and federal governments splashed cash it would fuel inflation and trigger further rate rises.

She said:

“The extent to which the government makes up the shortfalls for households by giving them more money, it makes it harder to dampen demand.”

“If we are increasing interest rates, what we are trying to do is slow growth in demand and that hits the private sector – typically consumption, investment, those sorts of things.”

“To the extent that the government is demanding goods and services of the economy – so in the variety of ways that they do, whether it’s direct expenditure or giving money to households to spend on goods and services in the private sector, that adds to demand.”

What to do now: My practical guide to coping with ANOTHER rate rise

A third consecutive rate hike from the Reserve Bank of Australia landed this week... like a bolt of lightning.

The impact was devastating …

Combined with stubborn inflation, volatile oil prices and ongoing cost-of-living pressures, it’s the latest blow in a long stretch of them. For Australians already struggling with mortgage repayments, tenants drowning in rent rises, and those trying desperately to buy their first home, it’s left many with their heads in their hands.

I was hoping the RBA might take a “wait and see” approach and hold rates because of this compounding pressure, but nope.

So, what now?

For starters, we need to stay calm. Panicking never helps. Next, we need to make a plan for our individual circumstances. Because while we can’t control interest rates, we can control how we respond to them.

Here’s my practical guide depending on where you’re at right now.

For mortgage holders: chase your own rate cut

Plenty of households who were managing OK a year or two ago with their loan repayments are now under mortgage stress.

To put this latest hike into perspective, someone with an average mortgage of around $736,000 could now be paying roughly $117 more per month after this increase alone - that’s about $1,400 extra a year in repayments, on top of previous hikes and broader cost-of-living pressures that have already pushed many households to the edge.

Here are a few ways to seek some financial relief:

Chase your own rate cut - Review your mortgage immediately. A quick call to your lender asking for a better deal could save thousands. If they won’t do a deal, refinancing may be worth exploring.
Boost your offset account - Keep savings in offset to reduce interest while retaining access to cash. Cut costs where possible: pause subscriptions, reduce driving to save on petrol, or sell unused items and redirect funds into your loan.
Build an emergency fund - Having a buffer for unexpected costs is financial shock absorption. Expenses can quickly become credit card debt without one.
Audit every major household bill - start with your insurances... home and contents, car, private health... and then on to energy, mobile, data and credit cards. Make sure you’re on the best deal. There are comparison sites which make this so easy and the savings can be huge.
Speak up early - If repayments are becoming unmanageable, contact your lender now. Hardship teams exist for a reason... to help borrowers doing it tough.
Earn more - It sounds obvious, but look at ways to increase your earnings: a pay rise, promotion, upskilling, or side incomes like freelancing, Uber driving after work or selling things you no longer need.

For renters: don’t just absorb every increase

Renters have been under enormous pressure for years, and many feel trapped between rising rents and limited options.

The national median rent is now around $580-$600 a week. In Sydney, it sits in the mid-to-high $700s, edging close to $800 in some areas. That means even a $50 weekly increase adds about $2,600 a year.

And you can bet landlords will pass on this latest rate rise. Here’s what to do:

Ask if it’s fair? - Don’t immediately accept a rent increase. Compare local listings and negotiate if it’s above market, especially if you’re a reliable tenant. You may be able to trade a smaller increase for a longer lease.
Be open to alternatives - Consider a smaller property, a different suburb, or shared housing to spread cost.
Build a buffer - Even $25 a week adds up to $1,300 a year, helping cover moving costs or unexpected bills. Think of an emergency fund like a short, focused “crash diet”: tighten spending in the short term to reach an initial goal (say $500), so you can start covering unexpected costs with savings instead of debt.
Consider moving in with family temporarily - Paying board instead of rent can significantly accelerate your savings, potentially freeing up $20,000+ a year depending on circumstances.

For aspiring buyers: stay in the game

It’s extremely tough out there for first-home buyers. And this latest rate rise feels like the goalposts have moved again - higher interest rates reduce borrowing power, while high living costs make saving a deposit harder.

But this is not the time to give up.

Owning a home one day still represents long-term financial stability and security. So, here’s my words of encouragement:

Keep saving, even slowly - Don’t give up and keep saving whatever you can. Consistency matters more than you think. Even $100 a week adds over $5,000 a year.
Revisit expectations - Consider a one-bedroom instead of a two-bedroom property, different suburbs, or regional areas instead of the Big Smoke. Shift from an “ideal” to a “possible” property mindset.
Consider rentvesting - Buying where it’s cheaper as an investor and then renting where you need to live for work is an alternative way to enter the property market.
Consider the “boomerang” strategy - Moving back home is increasingly common. Saving about half of $650 rent could build roughly $13,000-$17,000 in a year - a meaningful deposit boost.
Remind yourself - “This rate rise is a ‘now problem’, not a ‘forever problem’. Markets move in cycles - stay on course.

Softening the blow

Another rate rise is a punch in the guts - there’s no sugar-coating it.

But even in tough financial times, there are still ways to reclaim a sense of control and soften the impact.

It’s not about building wealth overnight. It’s about building financial resilience so you’re better able to handle whatever comes next.

When inflation rises, here’s how smart investors can respond

Inflation doesn’t just push up the price of groceries and fuel. Over time, it erodes the real purchasing power of your savings and income. READ MORE

Pre-budget ponderings

As we lead into next Tuesday night’s federal Budget, I thought it could be interesting to ponder the two interesting charts below.

The first is courtesy of the prestigious Economist magazine. It shows that Australia has the highest proportion of public servants in the world.

There is an ongoing debate about how disappointing Australia’s productivity growth has been in recent years, which makes me wonder whether having so many public servants boosts productivity or drags it down.

The US has half the number of public servants in proportion to its population compared with us.

Imagine if half of our public servants worked in private enterprise rather than the bureaucracy and the impact it would have on productivity and reduce the labour shortage.

The funding of the National Disability Insurance Scheme (NDIS) has also been a recent hot topic. There is no doubt that it has been one of the greatest social policies since it was launched in 2013, providing a vital safety net for many Australians.

But as you can see, in 13 years it has become a massive part of government expenditure:

Luxury property: The state of the high-end market

Since the broadening of the federal government’s 5% Home Deposit Scheme, there has been a huge amount of analysis on how it has pushed up the values of property at the lower end of the property market.

As a result, there seems to have been very little coverage of how luxury property has been performing.

But Ray White economist, Atom Go Tian, has just released a detailed look at the high end property market around the country.

Have a look:

Perth: No signs of slowing

City Beach has always been one of Perth's most coveted addresses with its ocean views and quiet streets. Now it has the momentum to compete on a national level: 18 per cent growth in 12 months, backed by a strong state economy, sustained population inflows, and a prestige market where stock has simply not kept pace with demand.

This is not an isolated spike either. Claremont is up 17 per cent to $2.78 million, while Mosman Park–Peppermint Grove grew 16.9 per cent to $3.03 million.

Perth is in its third consecutive year of double-digit growth in the luxury space, a run long enough that it no longer needs explaining as a post-pandemic effect or a commodity boom byproduct. It’s simply where Perth luxury is now.

The gap between Perth and Sydney luxury prices, which was once vast, is narrowing.

Queensland: Following the same path, one year behind

Newstead–Bowen Hills is one of Brisbane's most transformed precincts, a former industrial corridor that has become a riverside address for buyers who want proximity to the CBD without surrendering neighbourhood character. It grew 11.2 per cent over the past year to a $2.88 million median.

Ascot, where wide streets and heritage homes sit alongside Brisbane's racing establishment, reached $2.97 million on 10.9 per cent growth.

Hamilton, perched on the river with long views and large blocks, posted 10.8 per cent to $2.76 million.

On the Gold Coast, the growth is spread across suburbs with distinct identities: Surfers Paradise South, Mermaid Beach-Broadbeach and Main Beach - coastal, resort-adjacent, and quietly residential in turn - all recorded growth between 8.6 and 9.7 per cent. Main Beach now sits at $3.86 million.

Sydney: Steady at the top

Sydney's luxury market is growing, but at a measured pace. Dover Heights, Double Bay–Darling Point and Bondi–Tamarama–Bronte all recorded growth of between 5.2 and 5.5 per cent.

Sydney's luxury market is not weakening. It’s consolidating at a price level that still commands a significant premium over every other major city, and last year's prediction that prestige buyers might rediscover Sydney's relative value appears to be playing out, if gradually.

Melbourne: A recovery, but a modest one

Melbourne's luxury market has moved out of the mild contraction recorded last year. Surrey Hills (West)–Canterbury grew 3.6 per cent to a $2.92 million median, Balwyn increased by 3.2 per cent to $3 million, and Kew South went up 2.8 per cent to $3.12 million.

The pace, however, remains the slowest of any major market. Melbourne's top luxury suburb grew at less than one-fifth the rate of Perth's. For vendors who have watched other markets run hard, patience is still the requirement.

Canberra: a single data point, a clear signal

Only one Canberra suburb met the $2.75 million threshold used in this analysis: Forrest, with a median of $4.24 million and year-on-year growth of 4.5 per cent.

That scarcity reflects Canberra's luxury market more accurately than any percentage figure - there's simply very little supply at this price point, and what exists is moving steadily upward.

Source: Ray White

Top 10 retirement truths

I spent a couple of days this week talking to members of Brighter Super about how to plan for retirement and the adjustments you’ll need to make in your life.

I shared a post about the retirement truths no one talks about … and let’s just say there were plenty of nods of understanding from people in the audience.