Aussie mortgage holders face three interest rate hikes as money markets flip forecasts

Money markets are flashing red, predicting three interest rate hikes by the midpoint of next year.

In a grim warning to Aussie mortgage holders, money markets have flipped their interest rate call and now believe rates will rise by as much as three times by May 2027.

According to the money markets, there is now a 95 per cent chance the RBA lifts rates when it meets at the end of September before pricing in a 44 per cent chance of a second rate hike in December and a 17 per cent chance of third hike in May 2027.

This time last week, economists were split between one or two interest rate hikes.

So far in its fight against inflation, the RBA has lifted the cash rate three times from 3.60 to 4.35 per cent.

The central bank paused rates at its last two meetings but is widely predicted to increase interest rates for the fourth time this year to 4.60 per cent.

Both Westpac and CBA bringing forward forecasts for a rate hike to next week have been centred on inflation risks “materialising”.

CBA head of Australian economics Belinda Allen has changed her forecast from an interest rate hike in November to September.

“The risk sits with the need to tighten monetary policy further beyond September given the inflation backdrop, but it is not an easy decision to push monetary policy further into restrictive territory,” Ms Allen said in a note on Monday.

“We will be watchful of the data flow from here, particularly upcoming CPI and labour force prints. The conflict in the Middle East, the price of oil and signs of pass-through from the energy supply shock will also be crucial.”

Westpac chief economist Luci Ellis, who worked at the RBA for more than three decades, used her Friday column to highlight central bank commentary that she said pointed to a rate hike.

“In particular, Governor Bulock today flagged that upside risks to inflation appeared to be materialising.

“Materialisation of those upside risks was the conditionality set in August for further rate hikes, noting that the forecasts published in August did not support further rate hikes.”

National Australia Bank and ANZ have already forecast an interest rate hike in September.