Two of Australia’s biggest banks backflip to predict painful new interest rate hike

Commonwealth Bank and NAB have changed their interest rate predictions, saying rates need to rise to kill off persistently high inflation.

In a grim call for mortgage holders, NAB chief economist Sally Auld forecasts interest rates will rise in September after previously calling a hold.

“July CPI data showed inflation running hotter than the RBA expected in early August, and the RBA has repeatedly signalled in recent weeks that the Monetary Policy Board would act if upside risks to inflation were realised,” Ms Auld said.

“The risk is biased towards an additional hike in November, especially if activity data shows resilience in coming months.”

Meanwhile, Commonwealth Bank head of economics Belinda Allen predicts a further interest rate hike this year but says there is not enough data to lift rates by September.

“Nonetheless, given the acute focus on inflation in recent commentary, to not hike by the November meeting would be a surprise even if data continues to show a slowing economy,” she said.

Ms Allen forecasts the interest rate pain could be short-lived, with potential cuts in May and August 2027 once inflation falls back towards target.

KPMG chief economist Brendan Rynne said Wednesday’s inflation figures proved problematic for the central bank, which held interest rates in August.

Following three rate hikes in its first three meetings of the year by a total of 75 percentage points, the RBA paused in June and did not touch rates in August.

In total, the three hikes lifted the cash rate from 3.60 to 4.35 per cent.

Mr Rynne said the RBA would now be forced to play catch-up after missing the opportunity to lift rates at its last meeting.

“Today’s data supports the view that without policy action we may be in for a long, costly grind to get inflation under control and the Reserve Bank may have missed an opportunity at the last board meeting to get ahead of the game by raising rates,” he said.

VanEck head of investments and capital markets Russel Chesler said July’s figures showed the inflation fire was still “smouldering”.

“We remain firmly of the view that inflation is becoming entrenched and has little chance of returning to the 2.5 per cent midpoint of the RBA’s target range by late 2027.”