Economists have turned grim on interest rates, but as competition ramps up, a phone call could be a borrower’s best defence
Economists have stopped asking whether the Reserve Bank of Australia (RBA) will raise rates next week and started asking when it will stop.
Wednesday’s inflation figures all but sealed a fifth rate hike of 2026 at the RBA’s 3 November meeting, and the mood among bank economists has turned grim, with some already looking past November to the risk of another rise in February 2027.
“We expected a bad number, but this is even worse,” AMP chief economist Shane Oliver (pictured) told MPA. “So it does beg the question as to whether rates will have to stay higher for longer than previously thought, or if they’re going to give another hike again, maybe in February.”
Commonwealth Bank of Australia (CBA) and ANZ both moved on Wednesday to forecast a November hike which would bring the cash rate to 4.85%.
Why the banks now expect a November rate hike
CBA head of Australian economics Belinda Allen called the expected move an “insurance hike”, designed to guard against inflation risks from the Middle East conflict, the AI-driven global investment boom and tight domestic capacity.
She said the RBA had turned hawkish after a dovish press conference following its September increase, adding that the central bank “has picked a side and is leaning into the fight”.
Not everyone was surprised by the September 2026 consumer price index from the Australian Bureau of Statistics. CBA said the quarterly result landed in line with its expectations but remained too high nonetheless.
ANZ economists Madeline Dunk and Adam Boyton said the result “cements the case” for a hike, flagging services as the main worry. Market services inflation posted its strongest annual growth since 2024, a sign of domestic pressure the RBA watches closely because it is less exposed to swings in global prices such as oil.
Is the end of the hiking cycle in sight?
The RBA’s September rise pushed the cash rate to a 15-year high; another would take it to levels not seen since 2008.
“We’re retracing a lot of the downtrend that occurred last decade, which is not good for households, which had got in on the assumption that rates would stay lower,” Oliver said.
His tone has shifted since late September, when he told MPA that rates had probably peaked. Oliver still believes the top is near, but is less certain of the timing.
“The end will come at a point when you’ve got more households cutting back their spending and perhaps some of them putting their properties on the market,” he said. “We’re getting close to the top, but you can’t rule out another one beyond next week.”
Both banks see the economy slowing. CBA expects the RBA to hold in December and February but has pencilled in cuts for late 2027, though it stressed the timing is highly uncertain. It warned the cost will be weaker home prices and higher unemployment, building on a softening jobs market alongside the RBA’s hawkish stance. ANZ said weaker discretionary spending, particularly on clothing and footwear, may be an early sign that the inflation pulse has peaked.
Here's the good news
Borrowers should expect lenders to pass through next week’s expected rate hike, as they have done throughout 2026.
“I think we’ll see an instant pass-through. It’s hard to see them holding back,” Oliver said.
But the advertised rate is rarely what borrowers actually pay, which gives brokers room to negotiate.
“The old days where it was one size fits all and everyone pays the same rate, it’s long gone,” Oliver said. Asked whether a borrower or their broker could simply threaten to refinance, he added: “You can often find that that will work. And you can get a lower deal because the bank doesn’t want to lose you as a customer.”
Lender appetite may not hold up evenly, either. With bond yields running above the cash rate, the pressure is on lenders that rely less on deposits – typically smaller and mid-tier banks.
“To the extent that a small mid-tier bank gets more of its funding from sources other than deposits, they may be seeing some pressure on their funding costs,” Oliver said. “Which would then potentially reduce their appetite for lending.”
Competition could also soften the blow for some borrowers, with some lenders chasing market share by keeping their rates comparatively low.
“If you’ve got intense competitive pressures and some banks are trying to get market share, they may not pass the full amount through,” Oliver said. “The banking environment is still quite competitive. The banks would be under some pressure to oblige customers and cut their rate.”
For borrowers bracing for a fifth rise, that makes the phone their most practical line of defence – and leaves brokers well placed to make the call on their behalf.
As Oliver put it: “You don’t get that sort of deal unless you ring up.”
