The RBA has hiked the cash rate for a third consecutive time in May, completely unwinding all three cuts delivered in 2025. While last year’s loosening coincided with a broad commercial property rebound following several sluggish years, experts say the two don’t necessarily work in tandem.
The rate hike had been widely anticipated by financial markets and economists as recent data showed the global fuel shock drove has driven already-too-hot inflation further above the RBA’s 2-3% target range.
Out of the nine RBA board members, eight voted to hike the cash rate by 25 basis points to 4.35%, while one voted to leave it unchanged. This was in contrast to the March decision, which was hotly contested at 5-4 in favour of a hike – the first non-unanimous decision since the board began revealing its voting outcomes publicly in July 2025.
RBA governor Michele Bullock and the board have opted to hike three times from three meetings in 2026. Picture: Martin Ollman
REA Group Senior Economist Anne Flaherty pointed to the reasons for the hike.
“Over the March quarter, headline CPI rose 4.6% annually, while trimmed mean inflation came in at 3.3%, above the RBA’s target band of 2–3%. This marks the third rate hike in 2026, fully reversing the cuts seen last year,” Ms Flaherty said.
“With inflation expected to remain elevated, there is a strong possibility that interest rates could move even higher in 2026.”
The RBA also released updated economic forecasts on Tuesday in its Statement of Monetary Policy, which showed the RBA sees inflation returning to target by June next year, despite peaking at 4.8% by mid-2026.
This is a more aggressive taper than it had forecast in February, which pencilled in a 2.9% headline inflation rate for the same period.
This could be due to a more pessimistic outlook on the economy, with Gross Domestic Product (GDP) growth not expected to surpass 2% for the foreseeable future.
REA Group senior economist Anne Flaherty.
However not all asset classes and investors are affected evenly, according to Scott O’Neill, the CEO and founder of commercial investment platform Rethink.
“Rising rates have created a two speed market. Less experienced investors are pausing while our high net worth clients are more active than ever, using the uncertainty to negotiate harder and access deals that simply would not exist in a more confident market,” Mr O’Neill said.
“We settled over $160 million in March 2026 alone which tells you exactly where experienced capital is positioned right now.”
Scott O’Neill, CEO at Rethink Group. Picture: Supplied
This gives credence to the ‘K-shaped’ economic theory where some are actually better off with rising rates.
“In our experience, the investors feeling the most anxiety right now are typically those carrying higher levels of leverage with cash flow positions that leave little room for movement when conditions shift,” Mr O’Neill said.
“That is not a market problem. That is a portfolio structure problem.”
Market anxieties, partly caused by a higher interest rate environment, not to mention geopolitical events, have led to the well-documented ‘flight to quality’ phenomenon as well as defensive assets with long leases and steady yields.
This has led to a broad-based compression of yields across the country.
Experienced investors are seeing through the noise. Picture: Getty
However, according to Mr O’Neill, the smart money lies in diversification, rather than defensiveness alone, which leads to interest rates outpacing yields.
“The answer is not to sit on the sidelines. It is to structure your capital more thoughtfully across multiple assets, sectors, and vehicles so that no single decision defines your outcome,” he said.
For everyday investors that tend to be more sensitive to interest rate movements, diversity and cashflow could be achieved through vehicles such as investment trusts and pooled funds, rather than direct investment in a single asset, Mr O’Neill said.
Knight Frank chief economist Ben Burston. Picture: Supplied
Knight Frank chief economist Ben Burston pointed to some areas actually benefiting from higher interest rates.
“For property markets, it means that rental growth will be needed to drive performance in the near term… but there is still significant demand for quality assets given improving prospects for rental uplift across multiple sectors, including office, industrial and living sectors,” he said.
“We already are seeing this play out in the office market where prime rents have accelerated in Sydney, Brisbane and Adelaide, with other cities set to follow given rapidly diminishing new supply.”
The RBA next meets on 16 June, by which point it will have fresh data to assess across the gamut of key economic indicators, such as: lending indicators, wage price index, unemployment, household spending, inflation, and GDP growth.
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