RBA PRESS CONFERENCE

Reserve Bank of Australia Governor Michele Bullock is now being watched closely to see if RBA will “drag their feet due to political and public pressure”. Picture: NewsWire / Christian Gilles

All four of Australia’s biggest banks are now warning of a fourth rate hike to come, with a wild overnight market swing tipping it will hit as soon as this month.

The sudden shift follows Westpac’s dramatic U-turn on Tuesday to officially join CBA, NAB and ANZ in forecasting higher rates by Christmas, while cash rate futures surged overnight to price in a 60 per cent chance of a Reserve Bank move on September 29.

30 day interbank cash rate target implied expectation of change. Source: ASX

Economists from Australia’s biggest bank, Commonwealth Bank, on Tuesday warned the RBA is grappling with a “new economic reality” of structurally higher interest rates, flagging in their latest update that they tip November “or possibly as early as late September”.

CBA head of Australian economics Belinda Allen explained “we now expect a final rate hike this cycle in November to take the cash rate to 4.60 per cent, but the 28–29 September meeting is live, with a hike firmly on the table given recent data flow, language shifts by the RBA in recent communications, and market pricing”.

After holding out as the sole big four bank resisting another 2026 interest rate increase, Westpac chief economist Luci Ellis officially capitulated, flagging a cash rate target of 4.60 per cent as the bank’s new base case.

Ms Ellis blamed resilient household income growth and spillovers from the AI and data-centre investment boom for forcing her hand – picking November rather than September for a rise, on the belief that the RBA will wait for Q3 CPI data (due October 28) before pulling the trigger.

But she added “the September decision may see a split vote, with some members coming into the meeting with different views about supply capacity and the state of the labour market… Clearly the probability of the September scenario is not zero.”

RBA deputy governor Andrew Hauser reinforced those fears, after issuing a stark warning on ABC’s 7.30, admitting they were actively weighing three risks that could force another rate hike – ongoing Middle East turmoil, a global AI investment boom and domestic supply constraints.

“Inflation is too high, and that’s why we raised interest rates three times at the beginning of this year,” Mr Hauser said. “The question now, frankly, for us is have we done enough or is more needed? We are very focused on those upside risks to inflation… If it becomes clear that (the current path) is not feasible, we will raise interest rates further.”

CBA head of Australian economics Belinda Allen

This comes as markets pivoted overnight with the ASX rate tracker showing they now expect a 0.25 percentage point increase in less than three weeks’ time – as stubborn core inflation holds firm at 3.6 per cent alongside stronger-than-expected economic growth.

The sudden market swing to a September hike aligns with revised forecasts from major financial institutions such as National Australia Bank – which predicts two hikes across September and November – alongside Deutsche Bank, UBS and Morgan Stanley, who all see the cash rate target reaching 4.60 per cent on September 29.

Canstar data insights director Sally Tindall said the country’s fifth largest bank, Macquarie, has quietly signalled it’s in tune with that, hiking its fixed rates in the past week by as much as 0.30 percentage points – a clear sign it expects RBA’s next move to be upward.

“A hike is waiting in the wings.” Ms Tindall said. “The question is, will it materialise and when? At this stage, you would not rule out this month.”

The Commonwealth Bank’s Update said “to keep inflation contained, interest rates will need to be kept higher than in the past”.

It warned “bond markets are watching closely to see whether authorities will act quickly enough and decisively enough to keep inflation contained or instead drag their feet due to political and public pressure”.

RBA pricing (based on interbank futures). Source: CBA

Canstar calculations show a quarter-point hike would push minimum monthly repayments up by $92 on a standard $600,000 variable home loan – pushing the total increase across four rate hikes this year to $364 per month.

Those holding a $1 million mortgage face a $152 monthly hit from a single standard hike – amounting to $606 in extra costs compared to January.

If a fifth rate hike emerges by mid-2027, rough estimates indicate it would add a further $92 to monthly repayments for a $600,000 loan, and $152 for $1 million loans on top of all that.

Lenders are still playing dangerously close to the edge despite the forecasts, with eight cutting 33 new-customer variable rates in the past week alone in a bid to capture market share as the property sector cools.

“The property downturn continues to put pressure on lenders to bring in new business, and the easiest way for them to do this right now is to coax customers from other banks’ books,” Ms Tindall said.

“It’s a perilous game of musical chairs, but a fantastic outcome for those existing borrowers who capitalise on the market fragility.”