Westpac chief economist Luci Ellis predicts Reserve Bank of Australia rate hike in November

Westpac has changed its forecasts to have the Reserve Bank of Australia hiking rates again in November to a 15-year high of 4.6 per cent with the big four banks now unanimously predicting more pain by Christmas.

The bank’s chief economist Luci Ellis is now predicting a Melbourne Cup day rate increase following the release of September quarter inflation data in late October.

“The likelihood of an additional rate hike has risen enough to make a November hike the base case again,” she said on Tuesday.

Dr Ellis’ successor as the Reserve Bank’s chief economist, Sarah Hunter, said another rate hike was a real possibility given domestic factors were pushing prices higher and worrying the RBA’s nine-member monetary policy board led by governor Michele Bullock.

“Inflation is top priority right now; inflation is above target, has been for some time,” she said.

“We’re definitely concerned about that, the board are concerned about that, and I think they’ve been pretty clear they don’t really have tolerance for inflation to continue to be and expectations that it remains above target for an extended period.

“If there’s a sense that inflation’s going to be stronger than we think in the context of our forecasts, the board may well have to raise interest rates to tackle that.”

Australia’s big four banks are all predicting an RBA hike in 2026 that would mean borrowers would have copped four increases this year, while financial markets are eyeing an extra increase in 2027 that would see interest rates reach levels last seen almost two decades ago.

Another rise, as predicted by Westpac, would take the RBA cash rate to 4.6 per cent and be at the highest level since November 2011, adding $121 to monthly repayments on an average, new mortgage of $731,000.

The Reserve Bank’s three hikes in February, March and May have already added $354 to monthly repayments and another hike would mean borrowers with a new loan would be paying $475 more than they did at the start of this year.

That would add up to $5700 more a year in mortgage servicing costs, compared with early 2026.

Australia’s economic growth pace of 2.1 per cent during the last financial year, while weak by historic standards, was still inflationary, which Dr Ellis cited as grounds for Westpac predicting a hike again.

“The main reasons for the shift are the growing evidence of a more resilient household sector, and a larger-than-expected impetus from the spillovers from the data centre boom,” she said.

The consumer price index in July grew by an annual pace of 3.5 per cent, putting it above the RBA’s 2-3 per cent target for the 12th straight month, which Dr Ellis said made a September hike a possibility but not the base case.

“Tactically, we believe RBA leadership would strongly favour a November hike over September,” she said.

“Overreacting to a noisy monthly print is something they have previously said they would not do.

“That said, if the internal members felt the situation was more urgent and wanted to get the hike done in September, we believe they could muster a majority of monetary policy board votes in favour.”

Data centre construction also risked adding to inflationary pressures, given construction labour is in short supply.

“Certainly, it’s something we’re monitoring and you can think of it as a risk,” Dr Hunter told The Australian Financial Review’s Property Summit in Sydney on Tuesday.

The Commonwealth Bank, Australia’s biggest home lender, is predicting a 10 per cent drop in capital city house prices, from a 2026 peak-to-trough by next year, but Dr Hunter said the decline would have to be sustained to affect the broader economy.

“We’d have to see that 10 per cent fall, if it did materialise, sustain, so no recovery in house prices over a one to two-year horizon,” she said.

“Our sense at the moment, given everything else that is going on, we wouldn’t expect to see a recession or anything like that in the economy.”

The futures market now regards an RBA rate hike later this month as a 60 per cent chance, followed by another hike in 2027 that would take the cash rate to 4.85 per cent, which would be the highest level since late 2008.

Westpac has become the last of the big four banks to again predict a rate hike this year, with its November hike call putting it in line with the Commonwealth Bank and ANZ, while NAB is forecasting an increase on September 29 following the RBA’s next two-day meeting.

As recently as June, Westpac was the only big four bank to be predicting any more increases in 2026 as its competitors forecast the next RBA move to be cuts in 2027.