Australia’s major banks are warning borrowers to brace for another interest rate increase, with markets now pricing in a significant chance of a hike as early as September 29.

All four of Australia’s biggest banks are now forecasting another interest rate rise before the end of the year, marking a dramatic shift in expectations as stubborn inflation and stronger-than-expected economic growth put renewed pressure on the Reserve Bank of Australia.

The market moved sharply overnight, with cash rate futures pricing in a 60 per cent chance of a 0.25 percentage point increase at the RBA’s September 29 meeting.

The shift follows Westpac’s decision on Tuesday to abandon its previous position as the only major bank forecasting no further rate increases in 2026.

Big Four banks united on another rate rise

Commonwealth Bank, NAB and ANZ had already forecast another increase, but Westpac’s latest call means all four major lenders now expect the cash rate to rise to 4.60 per cent.

The Commonwealth Bank has warned the RBA is dealing with what it describes as a “new economic reality” of structurally higher interest rates.

CBA economists had previously expected the next increase in November, but now believe September cannot be ruled out.

CBA head of Australian economics Belinda Allen said the bank continues to expect November to be the most likely timing for the final increase of the cycle.

“We now expect a final rate hike this cycle in November to take the cash rate to 4.60 per cent, but the 28–29 September meeting is live, with a hike firmly on the table given recent data flow, language shifts by the RBA in recent communications, and market pricing.”

Westpac chief economist Luci Ellis also changed course, making a 4.60 per cent cash rate target the bank’s new base case.

Ms Ellis pointed to resilient household income growth and spillover effects from the boom in artificial intelligence and data-centre investment as reasons for the change.

Westpac expects the RBA to wait until November, largely because it believes policymakers will want to see the next quarterly inflation figures, due on October 28, before acting.

However, Ms Ellis acknowledged that September remains a possibility.

“The September decision may see a split vote, with some members coming into the meeting with different views about supply capacity and the state of the labour market… Clearly the probability of the September scenario is not zero.”

Markets suddenly price in a September move

The latest shift in expectations comes as the ASX rate tracker dramatically changed course overnight.

Markets are now pricing in a substantial chance of a 0.25 percentage point increase within less than three weeks, as inflation remains stubbornly elevated at 3.6 per cent and economic growth continues to outperform expectations.

The September scenario is also gaining support among several major financial institutions.

NAB is forecasting two rate hikes, in September and November, while Deutsche Bank, UBS and Morgan Stanley are all forecasting the cash rate will reach 4.60 per cent at the September 29 meeting.

Borrowers face another increase in repayments

Another quarter-point rate rise would add significant pressure to household budgets, particularly for borrowers who have already absorbed several increases this year.

According to Canstar calculations, a 0.25 percentage point increase would add approximately:

• $92 a month to repayments on a $600,000 variable mortgage.

• $152 a month to repayments on a $1 million variable mortgage.

For borrowers with a $600,000 mortgage, four rate increases this year would amount to approximately $364 in additional monthly repayments.

Those with a $1 million mortgage would face around $606 a month in additional costs compared with January.

There is also growing concern that another increase could arrive in 2027. If a fifth rate hike occurs by mid-2027, rough estimates suggest it could add a further $92 a month to repayments on a $600,000 loan and $152 a month on a $1 million mortgage.

Macquarie rate increases add to warning signs

The prospect of higher rates is also being reflected in lenders’ pricing decisions.

Canstar data insights director Sally Tindall said Macquarie, Australia’s fifth-largest bank, increased some fixed mortgage rates by as much as 0.30 percentage points over the past week.

She said the move was another indication that lenders were preparing for the possibility of further RBA tightening.

“A hike is waiting in the wings. The question is, will it materialise and when? At this stage, you would not rule out this month,” Ms Tindall said.

The CBA update similarly warned that interest rates may need to remain higher for longer to keep inflation under control.

“To keep inflation contained, interest rates will need to be kept higher than in the past.”

The bank also warned that bond markets were closely watching whether policymakers would respond quickly and decisively enough to contain inflation, rather than delay action because of political or public pressure.

Banks still compete aggressively for new borrowers

Despite the growing expectations of higher interest rates, lenders continue to compete aggressively for new customers.

Eight lenders cut a combined 33 new-customer variable rates in the past week, according to Canstar, as banks attempt to gain market share while the property sector cools.

Ms Tindall said the property downturn was putting pressure on lenders to attract new business, with banks increasingly targeting borrowers who are prepared to refinance.

“The property downturn continues to put pressure on lenders to bring in new business, and the easiest way for them to do this right now is to coax customers from other banks’ books.”

She described the competition as a risky game for lenders, but potentially beneficial for borrowers willing to shop around.

“It’s a perilous game of musical chairs, but a fantastic outcome for those existing borrowers who capitalise on the market fragility.”

September decision now firmly in focus

With all four major banks forecasting a cash rate of 4.60 per cent, the debate has shifted from whether another hike will occur to when it will happen.

November remains the base case for several economists, particularly given the importance of the upcoming quarterly inflation data. But the sharp move in market pricing, combined with changing forecasts from major banks and investment houses, means a September increase is now firmly on the table.

For mortgage holders, the prospect of another rate rise adds to an already significant financial burden — and raises the possibility that borrowing costs could remain elevated well into 2027.