Two of the country’s largest banks have abandoned their rate-cut forecasts in the past 48 hours, now predicting the Reserve Bank will lift the cash rate at its late-September meeting. One has flagged a possible second increase in November, which would push the cash rate to 4.85%, its highest point since the global financial crisis.
The reversal follows fresh inflation data showing trimmed mean inflation, the RBA’s preferred gauge, stuck at 3.6% annually in July. That figure hasn’t moved since November 2025, even as headline inflation eased slightly to 3.5%. Household spending rose 7% year-on-year in July, the fastest annual pace since mid-2023, with discretionary spending up 7.8% for a third consecutive month.
The dollar cost per household
If the RBA delivers two 0.25 percentage point increases, borrowers with a $600,000 mortgage and 25 years remaining would face an extra $183 a month in minimum repayments from those two moves alone. That takes the cumulative increase across five hikes this year to $456 a month.
Borrowers carrying larger loans face steeper rises. A $1 million mortgage could see cumulative monthly increases of $759 across the same five-move scenario.
For first-home buyers who entered the market in the past 18 months with minimal equity buffers, the combination of higher repayments and flat or falling property values in some markets has narrowed refinancing options. Investors with interest-only loans face similar pressure, particularly those who bought at peak prices in 2024.
Why the forecasts flipped
Core inflation hasn’t dropped in eight months. That’s the signal the RBA watches most closely, because it strips out volatile items like fuel and fresh food to reveal underlying price pressure.
The household spending data compounds the problem. Rising discretionary spending suggests consumers aren’t feeling enough pressure to slow demand, which is exactly what the RBA needs to see before it considers easing.
The gap between what the two banks now expect and what the broader lending market is doing has widened sharply. Since early June, 35 lenders have cut variable rates for new customers, and 52 lenders now offer at least one variable rate below 6%. That points to a lending market moving in the opposite direction to the rate-hike scenario.
Who’s most exposed right now
Borrowers on variable rates above 6.5% as an owner-occupier are likely paying a loyalty tax. The gap between what existing customers pay and what new customers can access has widened over the past six months, as lenders compete for refinancing volume.
Refinancers who locked in rates between mid-2023 and early 2024 are coming off those fixed terms now, landing back onto variable rates that are materially higher than their original discounts. If those borrowers haven’t reassessed their rate in the past 12 months, they’re probably overpaying.
First-home buyers who borrowed at or near their serviceability ceiling in late 2024 or early 2025 have the least room to absorb further rate increases without cutting essential spending or dipping into savings buffers.
Key numbers
- Trimmed mean inflation: 3.6% annually, unchanged since November 2025
- Household spending growth: 7% year-on-year in July, fastest since June 2023
- Discretionary spending: up 7.8% for third consecutive month
- Lenders offering sub-6% variable rates: 52
- Cumulative monthly repayment increase on $600k loan across five hikes: $456
What could stop a November move
A sharp drop in discretionary spending between now and the November meeting would reduce the probability of a second hike. If household consumption data for August and September shows consumers pulling back, the RBA would have more room to pause.
A deterioration in labour market conditions, particularly if unemployment rises faster than the RBA’s current forecasts, would also shift the calculus. The RBA has consistently said it’s trying to balance inflation control with employment stability.
External shocks, including further escalation in global conflicts affecting energy prices or supply chains, could force a reassessment. But those scenarios are harder to model and don’t change the immediate decision tree.
What you can action this week
If your variable rate starts with a six or seven, compare your current rate against what’s available to new customers. The gap between legacy rates and new-customer offers is wide enough that refinancing or renegotiating can offset part or all of a single rate increase.
Run your budget against two scenarios: one additional 0.25 percentage point rise, and two rises totalling 0.50 percentage points. If the second scenario leaves you with less than one month’s repayments in accessible savings, that’s a red flag.
Borrowers with offset accounts should check whether their current balance is materially reducing interest costs. If not, shifting that cash to a higher-yield savings account until rates stabilise might deliver better returns, depending on your loan structure and goals.
Variable home loan rates: 49 lenders now below 6% as cash rate holds tracks the lenders undercutting the majors. Auction market buckles as rates and war fears hit buyers covers how higher repayment expectations are already showing up in clearance rates.
The practical take
Two rate increases this year would add $183 per month per hike to a $600,000 mortgage. That’s $2,196 annually for one move, $4,392 for two. The cumulative toll across five increases in 2025 reaches $456 a month, or $5,472 a year.
The risk scenario is material enough to action now rather than wait for the September meeting. If your rate is above market, the time to renegotiate or refinance is before the increase hits, not after.
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General info, not financial advice.
