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Double rate hike ‘cannot be ruled out’, Westpac warns
One of Australia's biggest banks has warned that while we are expecting a rate hike in November, a second one in December "cannot be ruled out".
- Westpac senior economist Justin Smirk has said a follow-up RBA rate hike this year cannot be ruled out after inflation hit 4.3 per cent.
- He says a November hike is now locked in, with underlying inflation running well above the RBA’s forecasts.
- There are “compelling signs that inflationary pressures are set to reverse in 2027,” he said.
Mortgage holders bracing for an interest rate hike next week could be hit again before the year is out, with one of Australia’s big four banks warning a follow-up rise “cannot be ruled out.”
In a video breaking down the September Consumer Price Index (CPI), Westpac senior economist Justin Smirk said the figures had all but “locked in” a rate rise from the Reserve Bank of Australia (RBA) at its November meeting.
He said the risks for inflation remained “biased to the high side” until the end of the year, though a follow-up hike was not Westpac’s base case.
The warning shows how far inflation has outrun the RBA’s forecasts, and a December move would be the sixth rate rise of 2026 for borrowers.
It also comes as financial markets price in an 82 per cent chance of a hike next week, with all of the big four banks now tipping a rise, as previously reported by The Money Edition.
Inflation runs ahead of the RBA
The CPI rose 4.3 per cent in the year to September, stronger than both Westpac’s and the market’s expectations.
The monthly trimmed mean, a measure of underlying inflation, rose 3.6 per cent over the year, in line with expectations.
The RBA’s preferred measure, the quarterly trimmed mean, rose 1 per cent in the September quarter, lifting the annual pace to 3.7 per cent, above the roughly 3.5 per cent the central bank had expected.
Smirk said annualising that quarterly rise gives a 4 per cent pace, which he called “an acceleration to well above the RBA’s target band and not something the bank can ignore.”
He said meeting the RBA’s year-end forecast of 3.3 per cent would require a December quarter rise of just 0.6 per cent, a result not seen since the start of 2025 and “highly unlikely.”
Smirk said services prices were still growing strongly, with restaurants, cafes and takeaway food up around 4 per cent over the year, and childcare and clothing and footwear hire and repair up around 4.5 per cent.
“With this risk for inflation to the upside to the end of the year, a follow-up rate hike from the RBA cannot be ruled out,” he said.
What this means for your mortgage
A 25 basis point hike next week would take the cash rate to 4.85 per cent, a level it last reached in November 2008, as The Money Edition reported earlier.
A borrower with $600,000 owing and 25 years left would pay another $92 a month after next week’s expected hike, taking their increase since February to $456, according to Canstar figures, and each further 25 basis point rise would add roughly $91 to $92 a month, or about $1,092 to $1,104 a year.
Smirk said there were “compelling signs that inflationary pressures are set to reverse in 2027,” with Westpac forecasting that higher interest rates, softer demand and a modest fall in fuel prices will pull underlying inflation back within the RBA’s 2 to 3 per cent target band by the end of next year.
He said the cost of building a new home was flat in September after an average 0.5 per cent increase over the previous six months, with the Australian Bureau of Statistics (ABS) reporting that some builders were offering bigger discounts as demand slowed.
If those costs ease faster than expected, Smirk said underlying inflation could fall as low as 2.5 per cent, the midpoint of the RBA’s target band.
The economist noted that slower growth and rising unemployment were likely to keep the RBA on hold after the November meeting.
Topics: Interest Rates, money, Mortgage rates, RBA