The Hardest Rate Rise in 40 Years

Key Takeaways

• The RBA lifted the cash rate to 4.60%, its fourth rise this year.
• Rates are moderate by historical standards, but household debt is far larger.
• Mortgage costs are taking their biggest share of income since 1989.
• Combined government debt is on track to pass $2 trillion by 2030.
• Gold and silver are held against that backdrop, not against one rate decision.

The Reserve Bank of Australia raised the cash rate by 25 basis points to 4.60 per cent on Tuesday 29 September 2026, in a unanimous decision (RBA media release 2026-27). It was the fourth rise of 2026, 100 basis points in eight months, and the highest cash rate since November 2011. Housing affordability was already the worst in almost 40 years. The Bank raised anyway.

On paper 4.60 per cent isn't extreme, nowhere near the 17 per cent of 1989 (KPMG, 2 July 2026). But the rate was never the whole story. Australians carry loans many times larger than in 1989, against incomes that haven't kept up. So each rise bites harder.

The worst affordability since 1989

An average-income household now needs about 35.5 per cent of its earnings to service a mortgage on a median-priced home, the highest share since 1989, when it reached 37.5 per cent, and above the 33.3 per cent of the GFC. A median household on just over $125,000 can afford 12 per cent of homes sold nationally, down from 43 per cent five years ago (realestate.com.au Housing Affordability Report FY26). Those figures predate this hike.

• **Affordability:** servicing the average home loan took a record 50.8 per cent of median family income in the March quarter 2026, and 58.4 per cent in NSW (REIA, March quarter 2026).
• **Interest alone:** KPMG estimates interest payments were already 5.4 per cent of household income in March 2026. The 1989-90 squeeze peaked at 5.7 per cent (KPMG).
• **Stress:** Roy Morgan classed 32.5 per cent of mortgage holders, about 1,786,000 people, as at risk of mortgage stress in July 2026, an 18-year high and the sixth straight monthly rise (Roy Morgan, 1 September 2026).
• **The monthly bill:** Canstar puts the average repayment at $4,678 a month, up around $500 since January. This rise adds about $114 a month on a $750,000 loan, $454 across the four 2026 hikes (Canstar, 29 September 2026).

In 1989 the rate was brutal but the debt was small. Today the rate is moderate and the debt is enormous. The pain lands in the same place, and because most Australian mortgages are variable, it lands within weeks.

Why the RBA hiked anyway

The Board raised because it judged embedded inflation the worse outcome. Its statement cited the broadened Middle East conflict and energy prices well above the August assumptions, AI-related demand lifting global technology prices, firms reporting cost pressures and raising prices, and short-term inflation expectations remaining elevated (RBA, 29 September 2026).

Rate rises are the wrong tool for an oil supply shock. They can't make oil cheaper and they add to business costs. But Australia entered this shock with inflation already too high, and if the Bank looks through it, firms and workers stop believing the target. So it is using a blunt instrument because it judges the alternative worse.

The August CPI, released the next morning, complicated the case for a fifth rise. Headline inflation rose to 4.0 per cent, driven by a 14.8 per cent monthly jump in fuel, while trimmed mean held at 3.6 per cent for a third month (ABS, 30 September 2026). ANZ still expects 4.85 per cent in November; CBA, Westpac and NAB treat 4.60 per cent as the peak. My view is the cycle stops in that range, not because inflation is beaten but because households break first.

The debt behind the decision

Commonwealth gross debt passed $1 trillion this year. Budget Paper No. 1 projects $1,051.0 billion in 2026-27 rising to $1,249.0 billion by 2029-30, with net debt climbing from $616.6 billion to $767.8 billion (2026-27 Budget). Add the states and the Parliamentary Budget Office expects combined government debt to surpass $2 trillion by 2030 (PBO National Fiscal Outlook, August 2026).

Debt alone isn't failure. The carrying cost is the constraint. National public debt interest payments are projected to rise from $54.2 billion in 2026-27 to $77.2 billion in 2029-30, taking interest from 4.1 to 6.2 per cent of revenue (PBO). Higher rates raise refinancing costs just as deficits persist: tax receipts hit 24.1 per cent of GDP in 2025-26, against the Howard-era peak of 24.2 per cent, and the year still closed with a $22.3 billion deficit (AFR, 30 September 2026).

Governor Michele Bullock has declined to apportion that blame, telling a parliamentary committee it was not her place to judge fiscal policy (ABC News, 6 February 2026). What she has conceded is narrower: slower growth in public spending would help close the gap between demand and supply (Capital Brief, 6 February 2026). On that framing, demand added from one side has to be subtracted from the other, and the instrument is the mortgage rate.

That burden is uneven. Rates transmit through people with mortgages, mostly under 65. CBA's Household Spending Insights index shows Australians aged 65 and over recorded the strongest annual spending growth of any age group in the year to June 2026, up 10.1 per cent, while 25-34 year olds were weakest at 4.2 per cent and the 35-44 and 45-54 cohorts sat at 4.5 per cent each. CBA head of Australian economics Belinda Allen attributed the gap directly to the instrument: "These groups are more likely to have a mortgage, making them more sensitive to higher interest rates" (CommBank Household Spending Insights, 16 July 2026).

What it means for gold and silver

Both paths from here have historically favoured monetary metals. If the RBA tightens into an energy shock, recession and financial stress risk rises, and gold has historically been bid as a haven. If it stops with inflation still elevated, real rates fall, which has also supported the metal. A weaker Australian dollar could lift the local price further.

The counter is real: higher real interest rates can be a genuine headwind, and if August marks a sustained slowdown in underlying inflation that headwind strengthens. AMP's Shane Oliver has argued cooling data could make further hikes unnecessary.

What gold offers is the absence of a counterparty. It carries no government or corporate liability and cannot be created through borrowing, taxation or monetary expansion. That matters more when sovereign debt is compounding and the interest bill takes a rising share of revenue. Silver carries the same monetary characteristics plus industrial demand, which cuts both ways on volatility. Ainslie Bullion's gold and silver ranges cover both.

One qualification. Hard assets are not a remedy for mortgage stress. A household at the edge of its repayment capacity needs cash flow, not bullion. This is a portfolio question for investors with capital to allocate.

Housing is the least affordable in almost 40 years and the RBA is still raising. That is what makes this rise so heavy: not the rate, but the debt and the prices it lands on.

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This article is general information only and does not constitute financial advice. Past performance is not indicative of future results. Always conduct your own research or consult a licensed financial adviser before making investment decisions.