Money markets are now signaling a strong likelihood of multiple interest rate hikes by the Reserve Bank of Australia (RBA) through the first half of 2027, raising concerns for mortgage holders nationwide. Market pricing indicates a near-certain chance of a rate increase when the RBA meets next Tuesday, with growing probabilities of further rises in December and May 2027.
Current estimates show a 95 percent chance of a rate hike at the upcoming meeting, followed by a 44 percent likelihood of another increase in December and a 17 percent chance of a further rise in May. If these projections materialize, the cash rate could climb to levels not seen since 2008.
The RBA has held rates steady for the past two meetings but is widely expected to raise the official cash rate to 4.6 percent next week. Several major banks have revised their forecasts, moving expected rate rises forward in response to inflationary pressures that appear more persistent than anticipated.
Commonwealth Bank of Australia’s chief Australian economist, Belinda Allen, shifted her outlook from a November rate rise to September, citing inflation risks that could require ongoing tightening of monetary policy. “The risk sits with the need to tighten monetary policy further beyond September given the inflation backdrop, but it is not an easy decision to push monetary policy further into restrictive territory,” Allen commented.
National Australia Bank and ANZ have both forecast September hikes, with ANZ projecting two increases before year-end. According to ANZ economists, “We now expect the RBA to increase the cash rate by 25 basis points in September, in addition to the 25 basis points rate hike we already have in for November,” which would bring the rate to 4.85 percent.
During a parliamentary economics committee hearing last Friday, RBA Governor Michele Bullock reaffirmed the effectiveness of interest rate rises in controlling inflation, saying monetary policy “does work” globally to reduce inflationary pressures. Her deputy, Andrew Hauser, underscored the bank’s commitment to using rate hikes to bring inflation, currently at 3.5 percent, back within the policy target range of 2 to 3 percent.
Bullock acknowledged the sensitivity of Australian mortgage holders to rate changes, attributing this to the country’s large proportion of variable-rate mortgages. “We are not unique but we are relatively unusual in having a variable rate mortgage book, so that does mean that interest rates in Australia capture more of the imagination than in other countries,” she said.
Recent data from the Australian Bureau of Statistics show some easing in headline inflation, which declined from 3.8 percent to 3.5 percent over the year to July. However, the trimmed mean inflation rate—a key measure that excludes the most volatile items—remained steady at 3.6 percent, both figures exceeding the RBA’s target range and reinforcing the central bank’s cautious outlook on inflation.