Major Banks Abandon Rate Cut Forecasts as Inflation Figures 'Ugly'

Australia's inflation figures have taken a sharp turn for the worse, prompting major banks to revise their interest rate forecasts from cuts to hikes. The Australian Bureau of Statistics revealed that trimmed mean inflation, a crucial figure in the Reserve Bank of Australia's (RBA) decision-making process, stood at 3.6% in the year to July.

This figure remains outside the RBA's target band of 2-3%. ANZ, NAB, and Commonwealth Bank of Australia have all ditched their previous forecasts for a cash rate cut in 2027, instead predicting a hike in 2026. Madeline Dunk, an economist at ANZ, described the data as 'ugly', stating that it poses upside risks to the RBA's expectations.

The ABS figures showed that Australia's inflation is largely home-grown, driven by rising housing costs and food prices. Housing costs surged 5.7% in the 12 months to July, while food and non-alcoholic beverages costs lifted 3.2%. Analysts believe that the RBA's three cash rate rises since January 2026 have not been enough to cool demand.

ANZ predicts another hike is on the horizon, with economist Madeline Dunk stating that 'households are quite resilient at the moment' and that the RBA may need to take the cash rate to 4.6% to slow down demand. NAB and Commonwealth Bank of Australia also forecast hikes, although Westpac remains an outlier, predicting no further increases this year.