Two more rate hikes to come, major bank predicts
A major bank has forecast two more interest rate hikes yet to come in 2026, a prediction of more pain for mortgage holders.
In its latest board meetings, the Reserve Bank of Australia has held rates steady at 4.35 per cent, after three consecutive increases earlier this year.
There are rising fears of another interest rate hike before the end of the year. Peter Braig/AFR
Now, Citi senior economist and analyst Faraz Syed has predicted two more rate rises before 2027 rolls around.
“This view is driven by a two-speed economy, where a deepening housing correction is offset by an AI-related investment boom that is adding to capacity constraints,” Syed said in a note released today.
“Anemic productivity, a tight labour market, and elevated oil prices likely mean inflation will remain stubbornly high, with our Q3 trimmed-mean CPI forecast at 1 per cent.
“In our view, the RBA needs to hike further to get on the front foot of inflation, though a dovish board could delay action.
“Consequently, we push our first rate cut forecast out to Q4 2027.”
Syed also lifted his prediction for where rates would peak before falling, to 4.85 per cent from 4.6 per cent.
His rates forecast comes the same week that Macquarie Bank predicted the RBA would lift the cash rate at its next meeting.
RBA Governor Michele Bullock said after the board’s most recent meeting in August that further rate hikes were on the cards as the struggle to rein in inflation continues.
And the board’s minutes revealed the possibility of a hike was heavily discussed before members decided more data was needed.
The RBA board next meets September 28-29.
‘May have to raise’: RBA’s bluntest warning yet an interest rate hike may be coming
senior Reserve Bank of Australia (RBA) official has admitted the central bank has increasing concerns about inflation, and given the clearest indication yet that another interest rate rise could be handed down this year.
The RBA has delivered three rate rises this year and the cash rate is sitting at 4.35 per cent.
RBA Assistant Governor Sarah Hunter admitted the board was not afraid to hike up interest rates if it meant getting inflation under control. Thomas Wielecki
And while headline inflation slowed to 3.5 per cent for the year to July, it was still higher than economists expected, reigniting fears of another rate hike.
Speaking at the Australian Financial Review’s Property Summit on Tuesday, RBA assistant governor Sarah Hunter said if inflation continues to sit outside the 2-3 per cent target band, there would be less wiggle room to avoid a rate hike.
“We are definitely concerned,” she said.
“If there is a sense that inflation is going to be stronger than we think in the context of our forecast, the board may well have to raise interest rates to tackle that.
“I think the board has been pretty clear, and the staff as well. I’m certainly myself pretty clear that inflation is top priority right now – inflation is above target, and has been for some time.”
The biggest drivers to the higher-than-expected inflation numbers were the cost of housing, annual food inflation – driven by meals out and takeaway – and the continuing high cost of oil, caused by the Middle East war.
The continuing conflict is causing petrol prices to remain high, which is a factor Hunter pointed out as a significant inflationary pressure.
“That was one of those risks, and we are definitely concerned about that given recent moves,” Hunter said.
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