For many Australians, the festive season typically brings joy and celebrations—but this year, it’s also bringing a warning. Mortgage holders and consumers alike are bracing for the possibility that interest rates might not be dropping as expected. In fact, after a robust spending boom, the Reserve Bank of Australia (RBA) has hinted that rate cuts could be over, and rate hikes may be on the horizon.
The RBA’s Cautious Stance
The RBA recently left the cash rate at 3.60%, holding steady for the third meeting in a row. While this may sound like good news for borrowers, Governor Michele Bullock provided a cryptic warning during a press conference that left many wondering whether more interest rate hikes might be looming. While not confirming whether rates will rise, Bullock acknowledged the pressure of strong consumer demand, which is currently pushing the economy to near full capacity.
“It’s a delicate balancing act,” Bullock said when asked about the impact of major events like concerts, sporting games, and Black Friday sales on inflation, reports News. While she refrained from advising consumers on how to spend over the holidays, she pointed out that high consumer demand might inevitably lead to higher inflation, which could, in turn, push the RBA to consider rate hikes. The central bank, she explained, had not discussed rate cuts in their December meeting, and though they hadn’t explicitly discussed rate hikes, they were monitoring the situation closely.
Consumer Spending Shows No Signs of Slowing Down
A deeper look into recent spending patterns shows that Australians are still splurging—especially in the months leading up to Christmas. Spending increased by 0.5% in November, following a similar rise in October. This surge was driven by big-ticket events like the Ashes cricket series, concerts from bands like Metallica and Oasis, and even blockbuster theater productions. Commonwealth Bank economist Belinda Allen noted that 2025 has seen a shift in consumer behavior, with spending growth becoming more consistent rather than cyclical.
What’s interesting here is that this spending spree comes after a period of caution during 2022-2024, when Australians were tightening their belts due to rising living costs. So, what’s different now? Allen believes a combination of factors—tax cuts, a strong labor market, and a series of interest rate cuts—have put more money in consumers’ pockets. This newfound financial flexibility is driving people to spend more freely, contributing to the overall economic boom.
Inflation and Its Complicated Relationship with Spending
While the increased spending is fueling economic growth, it’s also contributing to inflation, which the RBA is keen to keep under control. Australia’s inflation rate, which had been at zero in October, is now climbing, with the yearly inflation rate sitting at 3.8%. The RBA has been monitoring inflation closely, and some economists warn that it might be high enough to trigger another rate increase early next year.
However, it’s not just consumer spending that’s adding pressure. Property prices are also on the rise, and that’s having a wealth effect, where increased home values give homeowners more financial freedom to spend. This added pressure on the housing market, combined with strong consumer demand, complicates the RBA’s position. If inflation continues to rise or property prices keep climbing, the RBA may have little choice but to raise rates to avoid overheating the economy.
What Does This Mean for Mortgage Holders?
For Australians with mortgages, the big question is whether their monthly repayments will start going up again. While the RBA has been cautious in its approach, the fact that interest rates have already fallen from 4.35% to 3.60% this year means that the current rate-cutting cycle is among the shortest and shallowest seen in decades. If the RBA raises rates again in February 2026, it will mark the end of a period of easing that many borrowers hoped would continue.
With the possibility of higher rates, mortgage holders should prepare for the reality that their repayments might rise again. The combination of inflation and strong consumer spending could mean the RBA has to act sooner rather than later, making it harder for borrowers to enjoy the benefits of lower rates.
