Australian households with home mortgages are bracing for fresh financial strain, as a top leading economist has predicted the Reserve Bank of Australia (RBA) will implement two additional interest rate increases in the coming months as it fights persistent above-target inflation.
Luci Ellis, Westpac Banking Corporation’s chief economist and a former three-decade veteran of the RBA, says incoming inflation data will likely clear the way for rate hikes in both August and September 2026. Her forecast for an August move hinges entirely on the June quarter Consumer Price Index (CPI) data, scheduled for public release on July 29.
Ellis noted that the RBA’s recent public communications from senior officials, including remarks from RBA chief economist Sarah Hunter delivered earlier this month, strongly signal that the central bank’s next policy move will be upward. “Recent messaging from RBA staff through the June meeting minutes and public speeches has made clear that policymakers lean hawkish on inflation risks, and prefer to front-load aggressive policy responses rather than delay action,” Ellis explained. “The near-term trajectory for the official cash rate remains firmly tilted toward increases, and our confidence in an August hike has grown significantly, pending confirmation from the upcoming CPI print.”
Even with a rate increase in August, Ellis warns that one move will likely not be enough to bring inflation under the RBA’s control, leaving a second hike in September on the table as her base case scenario. While she acknowledges there are plausible scenarios where the second increase is delayed or canceled entirely, she added that the RBA’s Monetary Policy Board is likely to remain focused on taming inflation even if economic activity slows in the middle of the year as forecast.
Australia’s inflation has stayed stubbornly above the RBA’s target range of 2 to 3 percent for years. Latest data from the Australian Bureau of Statistics puts annual headline inflation at 4 percent for the 12 months to May 2026, down slightly from 4.2 percent in April but still well above target. The RBA’s closely watched trimmed mean inflation rate, which excludes volatile price swings for food and energy to show underlying inflation pressure, hit 3.6 percent annualized in May – also far above the central bank’s goal.
The RBA currently projects that inflation will not return to its target range until 2028, a timeline that has kept policymakers pushing for tighter monetary policy. Already in 2026, the central bank has raised interest rates at three out of four of its policy meetings, pushing the official cash rate up from 3.60 percent to the current 4.35 percent. If Ellis’s forecast holds, the cash rate will reach 4.80 percent by the end of September, marking the highest level in more than a decade.
Compounding the pain for borrowers, Ellis says the RBA is also likely to delay any future rate cuts after this round of hikes, drawing on the central bank’s recent negative experience with early rate cuts. In 2025, the RBA cut rates three times to bring the cash rate down to 3.60 percent, only to be forced to reverse course and raise rates again in 2026 when domestic inflation rebounded quickly. “The RBA is now ‘once bitten, twice shy’ after the 2025 experience, when inflation bounced back almost immediately after it started cutting rates,” Ellis said. “It will not move to cut rates pre-emptively, and will hold borrowing costs higher for longer to avoid repeating that mistake.”
Even with that more hawkish posture, Ellis has shifted her forecast for the first rate cut forward to August 2027, earlier than her prior prediction of early 2028, as she expects inflation will gradually cool over the coming years. For cash-strapped mortgage holders already grappling with years of rising repayment costs, the forecast of two more hikes and delayed cuts means a longer period of financial strain before any relief arrives.