Signs of further interest rate tightening abound.
The latest comes from the Reserve Bank of Australia's (RBA) Deputy Governor Andrew Hauser who said on ABC's 7.30, "There's a lot to like about the Australian economy. But we have one big problem and that’s inflation. Inflation is too high, and that’s why we raised interest rates three times at the beginning of this year. And the question now, frankly, for us, is have we done enough, or is more needed?”
Hauser's comments come as the nation's central bank gears up for its September meeting on monetary policy.
The RBA has already raised the official cash rate (OCR) three times so far in 2026, taking it to its current level of 4.35%.
For households, investors and the broader market, the prospect of further rate hikes is concerning because many are already feeling the squeeze from higher borrowing costs and a rising cost of living. Another increase would further reduce borrowing capacity, put additional pressure on mortgage holders and weigh on housing demand, potentially pushing house prices lower.
Hauser's comments come on the back of RBA Governor Michele Bullock's own comments after the August meeting, when she said the bank would consider raising interest rates again, "if that is what is required to bring inflation down in a timely way."
But the prospect of further rate hikes is no longer confined to the RBA's rhetoric. Financial markets are already pricing in the possibility of another rate hike.
By the last week of August, futures were pricing in a 40% chance of a rate hike in September, rising to around 97% for November if the central bank leaves rates unchanged at its September meeting. By the first week of September, markets had increased its future probability of a rate rise at the September meeting to 54%.
And the major banks aren't betting against rate rises either.
After July's consumer price index (CPI), which was released in August, revealed that inflation is still above the RBA's target inflationary range of 2% to 3%, three out of four of Australia's Big Four major banks forecasted further interest rate hikes before the year's end, with some expecting a September hike and others tipping November. Westpac was the last holdout, officially changing its stance this week, and now expecting a rate rise of 25 basis points at the November meeting. Macquarie Bank is also forecasting a rate hike at the September meeting.
Meanwhile, July's CPI print showed that inflation, while easing slightly, is still elevated in Australia. Headline CPI for the 12 months leading up to July was 3.5%, down from 3.8% the month before. Trimmed mean inflation was up 3.6%, the same as June. Both figures are above the RBA's target inflationary range. The bank has repeatedly said it will not consider easing monetary policy until inflation is back within the 2% to 3% band.
Hauser pointed out three factors that could add to inflationary pressures: the ongoing conflict in the Middle East, rapid global growth caused from AI, and Australia's limited capacity to produce enough goods and services to keep pace with demand without driving prices higher.
"We're very focused on those upside risks to inflation," Hauser said.
The RBA's next meeting on monetary policy is scheduled for the 28 and 29 of September.
