‘Game, set and match’: Huge number of Australians to be smashed on rate hikes

Australian households are bracing for a huge surge in interest rates, with experts calling for as many as four hikes throughout 2026.

With both headline and underlying inflation accelerating over the past six months, experts say rates need to rise as soon as February.

EQ Economics managing director Warren Hogan warns households interest rates are too low and they could rise multiple times between now and the end of the financial year.

Mr Hogan said inflation had never actually been in the RBA’s target band and was currently on the rise.

“The logical implication of all this is interest rates are not at the right level,” he previously told Sky News.

“No one wants to hear it, of course, and we don’t debate these things very well in our community, but the reality is interest rates are too low.”

Mr Hogan said ultimately there would be less pain for households if the central bank lifted rates earlier.

“We’ve got to get on with it and get those rates up a little bit,” he said.

“It’s their best chance of not having to raise rates a lot, you know, if they go early.”

A mortgage holder with an average $694,000 home loan could potentially have to find an additional $451 a month should interest rates rise four times throughout the year.

Betashares chief economist David Bassanese also said interest rates need to rise.

“To my mind, two rate hikes - given our highly indebted and interest-rate-sensitive economy - should be more than enough to dampen economic growth again and rein in ongoing inflation pressures in areas such as housing, travel and hospitality,” he said.

Cash strapped mortgage holders brace for the worst

Millions of cash-strapped mortgage holders are “at risk” should the Reserve Bank of Australia lift interest rates in February.

Ahead of the Reserve Bank of Australia’s meeting on February 3, the money markets and experts are heavily calling for an interest rate hike from 3.60 to 3.85 per cent.

“All up, it appears to be game, set and match for a rate rise at the February policy meeting,” Betashares chief economist David Bassanese said.

Should the RBA lift rates, Roy Morgan says it will lead to a spike in mortgage stress for Australian households.

If rates are lifted by 25 basis points in February, they say a further 41,000 Australians will be “at risk”, with a total of 1,228,000 mortgage holders feeling the pinch.

Add a second interest rate hike or a total of 50 basis points of interest rate rises to 4.1 per cent, and a whopping 1,322,000 mortgage holders will be at risk.

A mortgage holder is considered “at risk” if their mortgage repayment is more than 25 to 45 per cent of their after-tax household income based on the appropriate Standard Variable Rate reported by the RBA and the amount they initially borrowed.

This varies depending on the income and spending.

What is driving inflation higher?

The Australian Bureau of Statistics on Wednesday revealed the headline inflation rate was 3.8 per cent for the 12 months until December, up from 3.4 per cent in the 12 months until November.

Annual goods inflation was 3.4 per cent in the 12 months to December, up from 3.3 per cent to November.

This was 3.3 per cent higher in December, up from 3.2 per cent in November.

This was mainly due to the price of electricity soaring 21.5 per cent as both federal and state rebates were unwound, as well as the price of meat which had a double digit jump.

Services inflation also added 4.1 per cent to household bills to the 12 months until December, up from 3.6 per cent to November.

The main contributor to this was domestic holiday travel up 9.5 per cent – in part due to the Ashes cricket series against England – as well as rising rents which stung households a further 3.9 per cent.

NED-9108-Monthly-Inflation-Indicator

AMP chief economist Shane Oliver told NewsWire lifting interest rates could still lower inflation, even if many of the items that rose were essentials.

“A lot of the things that are driving the inflation won’t be impacted by rate hikes but it is the overall demand in the economy that gets dampened and that slows inflation” he said.

“People have less money to spend, so it may not be the case that local government rates or electricity prices come down because of interest rates but something else will come down because a 25 basis point rise will cost someone with the average mortgage $110 a month.”

Mr Oliver says while inflation is on the rise he thinks the central bank should be patient on any potential rate hikes.

“Whether the RBA needs to raise rates, in my view they are better off holding to see if (inflation) was a temporary blip rather than a permanent one,” he said.

“But there will be strong arguments going the other way.”