Background: The RBA meets eight times a year to set the cash rate. They take into account inflation data, unemployment data, spending data and a whole lot more to determine whether to move the cash rate. The cash rate started 2026 at 3.60%, then climbed three times to 4.35% before the RBA hit pause twice.

What happened: That pause button was officially un-pressed yesterday afternoon, with the RBA unanimously lifting the cash rate to 4.60%. That's the highest it's been since November 2011. Australia now also has the unenviable title of the second-highest cash rate in the developed world, behind Iceland.

What else: Based on the RBA Governor's press conference, it feels like a couple more rate rises could be on the cards over the next six months. For someone with an average $735K mortgage, that means repayments are now about $427 more a month than they were in January, or more than $5,000 extra per year. But it's not just about what's leaving your bank account. A higher cash rate also changes how rich you feel.

What's the key learning?

💡 The wealth effect is the change in consumer spending when people perceive themselves to be wealthier or poorer.  

💡 Rate hikes hit the wealth effect in two ways. First, more of your pay goes straight to the mortgage, leaving less money for dinners, holidays, or a new couch. Second, there's the mental hit: home values fell in 93% of capital city suburbs over winter this year, which can make people feel poorer and tighten the purse strings (even if they aren't selling).

💡 How people feel about their wealth matters for the wider economy. Less confidence can mean less retail therapy and fewer holidays...creating a flow-on effect for retailers - as we've seen with Myer, David Jones and Premier Investments recently.