RBA Warns Inflation Risk Is Real Ahead of September Meeting
Governor Bullock says inflation risks are materialising, with futures markets pricing in a 93% chance of a rate hike at the September 28–29 board meeting.
The Reserve Bank of Australia's Governor Michele Bullock has put borrowers on notice: another rate hike is very much on the table. Speaking before Parliament in Canberra on Friday 18 September, Bullock said that while the economy was slowing, upside inflation risks were materialising — and she could not confirm that current rate settings were tight enough to return inflation to target.
"Developments since [the August meeting] suggest that although growth in the Australian economy is slowing, some of these upside risks to inflation appear to be materialising," she said, as Australian Broker reports. The Governor was direct about the board's uncertainty: "It may be [that] the same rate is enough to do that. It may be that it is not, and that is really where we are at the moment thinking about where those upside risks lie and whether or not we have got tight enough policy to deliver inflation back to target."
For borrowers, those carefully worded remarks translate into a very real possibility that the cash rate — currently at 4.35% after three increases already in 2026 — could rise again when the monetary policy board meets on 28 and 29 September. As of Friday, futures markets were pricing in a 93% probability of a hike at that meeting.
Why Inflation Isn't Backing Down
Governor Bullock pointed to two specific and persistent drivers of upside inflation risk.
The first is the ongoing conflict in the Middle East. "There is little sign of resolution of the Middle East conflict," she said. "Oil and related prices have increased sharply again and will add directly to inflation." Higher energy costs feed through to fuel, freight and everyday goods — the kind of broad-based pressure that is difficult to tame through interest rates alone.
The second is the global artificial intelligence boom. Bullock noted that "the global AI boom is driving stronger growth in economies that are key parts of the AI supply chain" and is "driving higher global prices for some AI-related technologies that are supply constrained." Cost pressures in parts of the economy driven by global demand do not respond to domestic rate increases the way traditional demand-driven inflation does.
July's consumer price index reinforced the board's caution. Headline CPI came in at 3.5% and the trimmed mean — the RBA's preferred underlying measure — at 3.6%. Both remain above the 2–3% target band. The board has been unequivocal: it will not consider cutting rates until inflation is convincingly back within target.
The International Monetary Fund's preliminary assessment of the Australian economy, released on 17 September, adds weight to this position. The IMF said "inflation remains a central challenge, while weak productivity growth is weighing on the economy's potential." It warned of a risk that further large increases in global energy prices lead to stronger second-round effects, "warranting further tightening." The IMF also noted that markets were pricing a 76% chance of the cash rate reaching 4.6% at the September meeting — a 15-year high — and confirmed that all four major banks were anticipating at least one further increase before year end.
The global backdrop adds further pressure. The US Federal Reserve this week unanimously lifted its benchmark rate to between 3.75% and 4%, while the Bank of Japan raised rates to 1.25% — their highest level since 1995, as ABC News reported. With central banks across major economies still in tightening mode, the RBA has limited room to deviate without market consequences.
What Borrowers Should Do Before 29 September
A further rate increase would be the fourth in 2026 and would deepen the repayment stress already being felt by variable-rate borrowers. Multiple hikes across a calendar year compound quickly for households already stretched by higher living costs and tighter budgets.
Chris Brown, managing director and mortgage broker at New Vision Financial in Sydney, spoke to Australian Broker about the outlook. "We've had costs of living go up; everybody's feeling the pinch. If interest rates do go up — which it's a flip of a coin to be honest — it will slow the market down again, and particularly coming into spring selling season."
Brown noted the investment sector was already absorbing significant headwinds from government budget changes and rising costs, and flagged that another hike could accelerate sell-offs. "There's already a downturn in the market and house prices and affordability. If rates go up, we'll start to see some people are selling to downsize. People are already starting to sell off investment properties. It's just going to stretch their budgets even further."
If you are on a variable rate, the most useful thing you can do right now is check whether your current rate is competitive. You can compare home loan rates across lenders to see what is available in the market. Use the repayment calculator to stress-test your budget at a rate 0.25% higher than today — that is the scenario you may be facing in a matter of weeks.
For anyone coming off a fixed rate or actively considering a move, explore your refinance options before the September meeting. Lenders are still competing for business, and acting now means your application is assessed under today's conditions, not tighter ones. Governor Bullock has been careful not to pre-commit — but with the market near-certain of another rise, the window for acting ahead of a hike is a short one.