Financial markets now certain the RBA will hike interest rates in 2026
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Financial markets are now pricing in a 100% chance the Reserve Bank will hike rates in 2026, in what would be a blow to mortgage holders but may take some steam out of an overheating property market.
The latest forecasts represent a turnaround from just two weeks ago, when traders were factoring in an even chance that the next RBA move would be a cut by its May meeting.
It comes as data showed inflation is now moving in the wrong direction, alongside this week’s national accounts and household spending figures which showed the economy is accelerating into the new year.
Adam Donaldson, the head of interest rates strategy at the Commonwealth Bank, said “the market has come to the conclusion that the Reserve bank won’t be cutting rates any further”.
“Basically, from February onwards, the market is starting to price some risk that rates will go up.”
Data from the Australian Bureau of Statistics showed consumer price growth jumped to 3.8% in the year to October – far higher than expected, and well above the top end of the central bank’s 2-3% target range.
The pain of higher mortgage costs would be a particular blow to the more than 85,000 first-home buyers this year who have enjoyed three rate cuts in 2025 but now face the prospect of higher repayments.