All four of Australia's Big Four banks are now in alignment: They're all expecting interest rates to rise later this year.
Westpac is the latest player to shift its outlook, abandoning its call from last month that interest rates would remain on hold through the end of 2026. The bank had been the lone holdout among the major banks, previously forecasting that the Reserve Bank of Australia’s (RBA) next move would be a rate cut midway through 2027
"A rate hike in November moves back into the base case," Westpac Group's Chief Economist Luci Ellis said on Tuesday. The major now expects the RBA to increase rates by 25 basis points at the November meeting.
"The main reasons for the shift are the growing evidence of a more resilient household sector, and a larger-than-expected impetus from the spillovers from the data centre boom," Ellis continued. "National accounts and internal data have pointed to stronger household incomes in Q2 and onwards, which means spending will be more resilient over the near term even with sentiment stuck at historically weak levels.
"Although the housing market is looking weaker than our previously published forecasts, its impact on consumer spending is more than offset by the wider boost coming from a globally-driven surge in tech-related spending," the economist added. "An unprecedented pipeline of investment in data centres and associated renewable electricity generation and distribution is expected to drive business investment and so GDP growth, but also limit the pace of disinflation."
The RBA has raised the official cash rate (OCR) three times so far in 2026, taking it to its current level of 4.35%.
At the most recent meeting on monetary policy, in August, RBA Governor Michele Bullock said the bank would consider raising interest rates again, "if that is what is required to bring inflation down in a timely way."
RBA Deputy Governor Andrew Hauser reiterated Bullock's warning later in the month while speaking at an event in Brisbane, saying that the conflict in the Middle East, investments in artificial intelligence and weak productivity growth in Australia are all potential sources of further inflationary pressure.
The July consumer price index (CPI), released in August, offered little relief for markets. While inflation is moderating in Australia, it's still above the RBA target inflationary range of 2% to 3%.
In the 12 months leading up to July, headline CPI was up 3.5%, down from 3.8% in the lead up to June. Meanwhile, trimmed mean inflation was up 3.6%, unchanged from the year leading up to June.
ANZ, National Australia Bank (NAB) and Commonwealth Bank of Australia (CBA) were all quick to price in further interest rate hikes later in the year. All three forecasted a 25-basis-point increase, but differ on timing: NAB anticipates a September hike, while CBA and ANZ are forecasting an increase in November.
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%.
"I think it's a pretty strong signal that interest rates are definitely going to rise," Ben Kingsley, founder and managing director of Melbourne-based Empower Wealth Advisory, told Australian Broker. "What brokers need to be thinking about with their customers is what are they doing to take action before the rate rise? Because ultimately, it's going to impact customers' borrowing capacity. And that has two particular implications.
"One is that if you're keen to buy a new property — whether as a first-time homebuyer, upgrader or whatever — that might limit your overall purchasing power and what you can buy," he continued. "And also, from a refinance point of view, the serviceability calculators will also reduce my ability to potentially refinance to a new lender, because of the higher rate. So you could be stuck in mortgage prison."
Mortgage holders and investors are already feeling the squeeze from higher interest rates and increased costs of living. For would-be homeowners, the challenge is compounded by elevated property prices in some areas and a persistent housing shortage.
"We're already experiencing a demand shock off the back of the federal government's tax changes to property," Kingsley said. "So this is going to be another nail in the coffin for demand. We are going to see further lessening of demand and higher supply. Now that's great news for people who can afford to actually buy, because property prices are going to come down. But for a lot of people, it also is going to impact their ability to borrow. So overall, it's a net negative."
Nathan Smith, founder and director at New South Wales-based brokerage Birdie Wealth, said any additional interest rate rises this year would weigh further on market momentum.
"There's already a lack of confidence and uncertainty in our buyers at the moment," he said. "There is no immediate need to proceed with the purchase. A lot of them are sitting on their hands and waiting because they don't have confidence in the direction the market's going to go. I think any further rate rises are only going to further reduce confidence in purchasers' minds and delay their purchasing decisions as they wait to see how this affects the market."
The broker added that the current market does present a few silver linings, especially for buyers willing to take the risk.
"It's always a good time to consider purchasing properties when other people aren't doing it," Smith said. "And so we are encouraging people to look at their own personal position and see if it's the right decision for them. However, nervous, anxious people purchasing property for the first time don't want to watch their property fall in value over the next few months. But if you're comfortable and have a long-term view of the market, then there is opportunity there."
The RBA's next meeting on monetary policy is scheduled for the 28 and 29 of September.
