RBA Locks in Fourth Rate Hike as Markets Bet on Further Increases

The Reserve Bank of Australia (RBA) is widely expected to raise interest rates for the fourth time this year, with markets pricing in a 90% probability of a rate hike tomorrow. The RBA's Monetary Policy Board will meet on Tuesday and Wednesday to discuss the next move in interest rates. A standard 25-basis-point rate hike would take the cash rate target from 4.35% to 4.6%, the highest level since November 2011.

According to AMP's chief economist Shane Oliver, the majority of analysts expect the RBA to be done with hikes after tomorrow. However, money markets are more aggressive, pricing in at least two more hikes and a better than 50% chance of a third, which would take the cash rate above 5% by the middle of next year.

The banks have already followed market pricing and their own forecasts by lifting fixed mortgage rates. Canstar data shows that 18 lenders have increased at least one fixed term rate in September, with Macquarie Bank lifting its rates for the second time in three weeks. A 0.25 percentage point rate hike in September would add $91 to the monthly repayments on a $600,000 loan.