RBA May 2026: What Q1 Inflation Could Mean

The ABS released the March quarter Consumer Price Index on April 29, confirming annual inflation at 4.6 per cent - well above the Reserve Bank's 2 to 3 per cent target. With the RBA board meeting on Tuesday 5 May, all four major banks are now forecasting another 25 basis point rate hike that would push the cash rate to 4.35 per cent. For first home buyers already stretching to enter the market, the next six days are a critical window to understand how this decision could change what you can borrow and what your repayments will look like.

What the Q1 2026 inflation data shows

Annual inflation at 4.6 per cent is running at more than double the RBA's 2 to 3 per cent upper bound. The March quarter result reflects ongoing pressure from housing costs - including rents near record highs - and energy prices affected by global supply disruptions.

The Q1 2026 CPI reading was the key data release the RBA board was waiting for before its May meeting. A pause was possible if inflation had softened, but the 4.6 per cent result has made a hike the most widely expected outcome. Commonwealth Bank, which described it as "another line ball decision," is still forecasting a 25 basis point increase, as are ANZ, NAB, and Westpac. When all four major banks align on a call ahead of a board meeting, history suggests the market has read the situation accurately.

How a hike to 4.35 per cent affects your borrowing power

Each 25 basis point increase in the cash rate feeds into variable home loan rates quickly - usually within a few weeks of the RBA decision. Lenders also apply a serviceability buffer of 3 per cent above the loan rate when assessing applications, so the impact on your maximum borrowing amount compounds with each hike.

The RBA increased the cash rate in both February and March 2026, moving from 3.60 per cent to 4.10 per cent. A May hike to 4.35 per cent would represent a 0.75 per cent total increase since January. Westpac's current forecast goes further, with hikes in June and August that would push the cash rate to 4.85 per cent - its highest level since 2008. Even if Westpac's forecast is too aggressive, the direction of travel is clear.

To model how rate changes affect your specific situation, the Borrowing Power Calculator lets you adjust income, expenses, and interest rate assumptions to see an updated estimate of what lenders are likely to offer under current conditions.

Mortgage stress is rising for existing borrowers

Roy Morgan Research tracks the share of mortgage holders whose repayments exceed a meaningful portion of their after-tax income - a measure it calls borrowers "at risk." Before the February hike, this figure stood at around 25 per cent. After the March increase, it has risen to an estimated 28.9 per cent, equivalent to approximately 1.5 million Australian mortgage holders.

If the May hike to 4.35 per cent proceeds, Roy Morgan projects the at-risk share would climb to 30.4 per cent - around 1.6 million borrowers. For context, this figure was below 20 per cent before the 2022 hiking cycle began. Borrowers who purchased in the past two to three years are experiencing the full weight of this cycle for the first time, and the numbers make clear why stress-testing your repayments before committing to a purchase price is not optional planning - it is essential preparation.

What this means for first home buyers right now

The May 5 announcement will land six days from now. Here is how to use that window to sharpen your planning:

• Check your borrowing ceiling with current numbers. Speak with your lender or broker after the May 5 decision is confirmed. Pre-approvals can shift with rate changes, and getting an updated figure before you bid or make an offer removes a major variable from your planning.
• Stress-test at rates well above current levels. The Interest Rate Shock Tester can show your repayments at 5 per cent, 5.5 per cent, and higher, which is the relevant stress scenario if Westpac's further hike forecast proves accurate. Knowing your comfortable repayment ceiling before you buy is the clearest risk management step available to you.
• Factor the hike into your deposit target. A reduction in borrowing power means a larger deposit is needed to reach the same purchase price. Recalculating your deposit target alongside your monthly savings rate gives you an updated timeline based on current market conditions, not assumptions from six months ago.
• Check whether lower price points unlock additional support. Scheme price caps are fixed in dollar terms. If rate rises push you toward a lower purchase price, you may be eligible for the First Home Guarantee, state-based stamp duty concessions, or both - support that may not have been relevant at your original price target.

Run the numbers

Use these tools to understand how the May 5 rate decision affects your situation before the announcement lands:

• Interest Rate Shock Tester - see how your monthly repayments change at 4.35 per cent, 4.60 per cent, 4.85 per cent, and beyond
• Borrowing Power Calculator - update your income and rate inputs to get a current estimate of what lenders will likely offer
• Scheme Comparison Tool - compare the First Home Guarantee, Help to Buy, and state-based schemes side by side based on your deposit, income, and location
• Grant Stacker - if rate rises push you toward a lower purchase price, check which grants and schemes you may be eligible for