Mortgage holders and ASX share investors alike could be facing not one, but two more RBA interest rate hikes this calendar year.
That's according to Citi analyst Faraz Syed, who believes that ongoing inflationary headwinds Down Under will force the central bank's hand.
Image source: Getty Images
What's been happening with interest rates?
When Australians kicked off the New Year, the official cash rate stood at 3.60%. A level many hoped would be the medium-term peak.
Those hopes were dashed, however, as inflation began to pick back up even before the onset of the Iran war. And with that conflict adding fuel to the inflationary fire, predominantly by sending global oil prices skyrocketing, the RBA has already increased interest rates three time in 2026 to the current 4.35% level.
While some ASX shares have outperformed in this environment, pressure is beginning to show across the wider market.
Down 1.1% today at 8,727 points, the S&P/ASX 200 Index (ASX: XJO) is trading right where it was on 2 January and down 0.9% over 12 months.
And ASX 200 tech stocks, which tend to be much more sensitive to interest rate moves, have fared far worse.
Indeed, the S&P/ASX 200 Information Technology Index (ASX: XIJ) is down 22.8% in 2026 and has plunged 43.6% since this time last year.
Why borrowing costs are expected to keep rising in 2026
At its last meeting on 11 August, the RBA opted to keep rates on hold.
But the board cautioned:
While the impact of the Middle East conflict on inflation has so far been less than expected, headline inflation is still too high. Trimmed mean inflation also remains elevated and is little changed from the March quarter.
Fast forward to today, and the Brent crude oil price just topped US$109 per barrel as the Middle East conflict looks to be heating back up rather than cooling down.
Commenting on why he expects the RBA to increase interest rates two more times in 2026, lifting the cash rate to 4.85% by year end, Cit's Syed said (quoted by The Australian Financial Review):
This view is driven by a two-speed economy, where a deepening housing correction is offset by an AI-related investment boom that is adding to capacity constraints.
Anaemic productivity, a tight labour market, and elevated oil prices likely mean inflation will remain stubbornly high, with our Q3 trimmed-mean CPI forecast at 1 per cent.
In our view, the RBA needs to hike further to get on the front foot of inflation, though a dovish Board could delay action. Consequently, we push our first rate cut forecast out to Q4 2027.
CreditorWatch chief economist Ivan Colhoun also believes mortgage holders and ASX share investors should prepare for higher interest rates. Though he expects the RBA will hike rates just once more, followed by an extended pause.
"Over the past month and following the release of the very high July CPI, many economists have changed their view back to the view that the RBA has not finished tightening," he said.
Colhoun added:
With input and labour costs continuing to rise at rates well above those consistent with the return of inflation to target, this suggests the Board will need to make the unpopular decision to tighten interest rates again in September as the upside inflation risks it has been discussing materialise.
The good news is that interest rates will likely remain on hold for a considerable time afterwards.
The RBA will report its next interest rate decision on 29 September.
