Rate hikes ahead: Chilling warning issued by major lenders – realestate.com.au

Australians are being warned to prepare for a tough start to 2026, with home loans set to take a hit as interest rates are likely to rise.

Commonwealth Bank (CBA) and National Australia Bank (NAB) both updated their cash rate forecasts this week, factoring in an increase in the cash rate at the Reserve Bank of Australia’s (RBA) first meeting on February 2 to 3.

It comes amid growing concerns about the rise in both headline and underlying inflation, along with unexpected economic resilience and growth.

The RBA has not raised its cash rate for two years and has made three cuts this year, after finally ending the period of high inflation post-Covid.

The three interest rate cuts – although broadly spread and cautious – have contributed to the price moving in the opposite direction again. While the bank recently left rates unchanged after its December meeting, Governor Michele Bullock warned that no more cuts are in the offing.

“The question is: is it just an extended hold from now on, or is it a possibility of a rate hike,” she said last week during a press conference after the rate decision. “These are the two things that the board will look closely at in the new year.”

The unexpected resurgence in inflation has been the talk of the market since quarterly inflation data in September confirmed that the figures were higher than the RBA had predicted. The Australian Bureau of Statistics (ABS) Consumer Price Index data from October confirmed this, showing moderate average inflation up 3.3% annually.

NAB expects successive rate hikes early next year. Image: supplied

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This pared-down average inflation measure, which ignores volatile and one-off price movements, is the figure the bank relies on when deciding on the cash rate.

Both figures fall outside the RBA’s target of 2-3%, while Ms Bullock has said she expects headline inflation to remain high for another 12 months.

NAB expects not one but at least two rate hikes in that period, confirming this week that the forecast now calls for consecutive rate hikes in February and May.

“The governor was unusually candid during her press conference, stating that evidence of continued strength in inflation could lead to a policy response from the RBA,” the bank said.

RBA Governor Michele Bullock has said he does not expect further cuts to the cash rate. Photo: News Corp Australia

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CBA, Australia’s largest lender, has priced in a 25 basis point rise in cash rates in February by pointing to “sudden macroeconomic shifts” in recent months.

“Stronger [economic] The activity has arrived at a time when the economy is already close to capacity constraints,” Australian economics chief Belinda Allen said in a note.

“That force is keeping inflation from easing. A small rate hike in February would send inflation back to the RBA’s target range of 2-3%.”

Ahead of the next decision in early February, the RBA will examine how high discretionary spending over Christmas and New Year will further add demand to the economy.

With demand likely to exceed supply even further in the run-up to the decision, inflation is expected to rise further.

Inflation data expected from the ABS in the first week of January will shed some light on how consumer spending and economic activity have fared in the run-up to the holiday period.

A more up-to-date picture of how the seasonal spending has played out won’t come until closer to the RBA’s next meeting.

The Australian Stock Exchange shows that markets were pricing in a 27% chance of a rate hike on December 12.