The RBA faces a dilemma, but more rate hikes aren’t the solution

July 27, 2026 — 5:00am

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People with hefty mortgages could be in for some unwelcome news later this year, if the signals coming from an arcane corner of the financial world are to be believed.

Markets that tell us where traders think Australian interest rates are heading have recently started to price in a further hike in the cash rate this year as a virtual certainty. While a move next month is seen as a roughly a one-in-three chance, a move by December has been seen as a done deal.

If these markets are right – admittedly a big “if” – homeowners will be staring down interest rates of 4.6 per cent by the end of 2026, which would be their highest level since 2011. The housing market slump would also be deeper if the RBA raises rates again.

However, do you ever feel the interest rate prediction game seems to change by the month? You’d be right. It’s a fickle business, and we in the media are just as guilty of indulging in rampant interest speculation as anyone.

It was only last month that some of the nation’s top economists were revising their predictions to say interest rates had peaked, and the next move would most likely be a cut in rates some time in 2027, not a hike. Indeed, this remains the view of the three big banks, except for Westpac.

Fast forward to today, and the narrative in markets has shifted. Now traders are worrying more about the risks of........

© Brisbane Times