RBA Rate Hike Expectations Build Ahead of September Meeting

The Reserve Bank of Australia (RBA) is likely to raise interest rates in September, according to four major banks - National Australia Bank, Deutsche Bank, UBS, and Morgan Stanley. They forecast a 25-basis-point increase that would take the cash rate from 4.35% to 4.60%. The hawkish shift has propelled the Australian dollar to four-month highs and forced a broad repricing across currency, bond, and equity markets.

The catalyst for the forecast revisions was the July Consumer Price Index release, which showed that inflation had run warmer than the RBA anticipated in August. While headline inflation eased to 3.5%, the trimmed mean measure remained stuck at 3.6% on an annual basis, well above the central bank's 2-3% target band.

Not everyone agrees with this forecast, however. Westpac is the outlier among the Big Four banks, maintaining its forecast that the RBA will hold the cash rate at 4.35% for the remainder of 2026. Westpac points to a cooling labour market, slowing wage growth, and deteriorating household consumption under the weight of cumulative mortgage stress.