Australian homeowners with mortgages are facing the possibility of further interest rate increases, as Commonwealth Bank and ANZ have revised their forecasts to predict a hike by the Reserve Bank of Australia (RBA) before the end of the year. Both institutions now anticipate a 0.25 percentage point increase to the cash rate in November, which would bring it to 4.60 percent.
This predicted increase marks a significant shift from earlier expectations across the four major Australian banks, which had generally forecast rate cuts beginning in 2027. If the 0.25 percentage point hike materializes, it would represent the highest cash rate level since October 2011, adding further financial pressure on households already grappling with elevated living costs.
According to analysis from Canstar, a quarter-percentage-point increase would result in an additional $91 per month in repayments on a $600,000 mortgage with 25 years remaining. For homeowners who have already experienced three rate hikes in 2026, this potential increase would mean their monthly payments are approximately $363 higher than at the start of the year.
Inflation Data Influences Forecasts
The revised predictions follow the release of recent inflation figures that have tempered hopes for a swift easing of price pressures. Data from the Australian Bureau of Statistics indicated that headline inflation slowed to 3.5 percent for the year ending July, down from 3.8 percent in June. However, trimmed mean inflation, which the RBA uses as a key measure of underlying price pressures, remained unchanged for a second consecutive month at 3.6 percent.
ANZ updated its cash rate forecast immediately after the inflation data was published, and NAB has confirmed its own outlook is under review. Sally Tindall, Canstar's data insights director, noted that the latest inflation report has prompted a rapid reassessment of interest rate expectations by economists and the market.
"The economic narrative has taken a U-turn in the space of just a couple of days," Tindall stated. "The central bank has warned the risk lies with a hike, and based on Wednesday's inflation figures, ANZ has now put a date on that risk."
She further elaborated that while a 0.25 percent hike might seem modest, its impact is substantial for those with larger mortgages. For borrowers with a $1 million mortgage, this would translate to an additional $152 per month, accumulating to an extra $605 monthly compared to payments at the beginning of the year.
Tindall pointed out that the fall in headline inflation was largely due to a high figure from the previous year dropping out of the calculation, rather than a clear indication of inflation being under control. "Core inflation provides a clearer picture of the troubles in the figures," she said. "In the last eight rounds of monthly data the annual figure has not gone down. Not once."
Central Bank Signals Potential Tightening
Further supporting the possibility of continued monetary tightening, the minutes from the RBA's August board meeting revealed that some members believed further policy tightening might be necessary if inflation risks escalated. The minutes stated that "several members judged that it was quite possible that the upside risks to the inflation forecast would crystallise, requiring some further tightening."
Shane Oliver, AMP chief economist, described the inflation figures released on Wednesday as "way too high" and agreed that they strengthen the case for another interest rate hike. He argued that the annual inflation rate's decline was misleading, primarily influenced by a high reading from a year prior receding from the year-on-year calculation, rather than an actual decrease in price pressures.