Borrowers on edge as bank hints interest rates could climb again

The NAB has sent a subtle but unmistakeable signal that Aussie borrowers should still be bracing for further interest rate hikes in 2026.

The big four bank on Friday (29 May) became the first major bank to move fixed rates since the May cash rate rise. It hiked its short-term fixed rates by 0.15 percentage points, the first big bank to move fixed rates since the 5 May cash rate rise.

The move comes amid market expectations of a cash rate hold next month, however, many economists believe interest rates could still rise further beyond June, and stay high for longer.

Outside of the majors, the lowest fixed rate is now 5.99 per cent available for both a 1- and 2-year term.

Canstar’s Data Insights Director, Sally Tindall, said, “NAB’s relatively minor hikes to fixed rates are a sign that lenders aren’t convinced the rate hiking cycle is over.”

“Fixed rates are often a window into what banks think is coming next. NAB’s decision to lift its short-term fixed rates suggests it’s not ready to rule out further rate rises, even though the RBA will almost certainly hit pause next month.

“Competitive fixed rates are fast becoming a thing of the past.

“At the start of the year there were 83 lenders offering at least one fixed rate under 6 per cent. Today there are just three. 

“By comparison, there are still more than 40 different lenders with at least one variable rate under 6 per cent, following the RBA May hike,” she said.

Financial markets are pricing in only a very low probability of an RBA interest rate hike at its next meeting, with the overwhelming consensus pointing to a hold at the current 4.35 per cent cash rate.

As of 28 May (Thursday), the ASX 30-day Interbank Cash Rate Futures June 2026 contract traded at 95.65, indicating essentially zero expectation of a rate cut and consistent with a high likelihood of no change. Betting and prediction markets, such as Polymarket, have similarly assigned around 94-96 per cent probability of no change, leaving just a 4 to 6 per cent implied chance of a hike.

This reflects the view that the RBA is likely to pause after its three hikes earlier in 2026 to assess incoming data, including recent inflation trends, before considering any further tightening later in the year.

Helen Avis, Director of Finance, Specialist Mortgage, agreed rates were unlikely to budge in June but went further than many by suggesting the hikes might be on hold longer than expected in the wake of the Federal Budget’s potentially dampening impact on investment property activity.

“Rates are unlikely to be raised in June, and I think they will be on hold for a while, and am hoping that this will be the high point.”

Her hopes are not forlorn.

Spending fell 1.1 per cent in April, representing a downturn from the 1.6 per cent rise recorded in March, according to new data published by the Australian Bureau of Statistics (ABS) on Thursday.

Canstar analysis shows almost 90 per cent of lenders’ lowest rates are now variable, not fixed, with an average gap of 0.27 percentage points between each lender’s lowest fixed and variable rates.

“If the banks are raising fixed rates then they will become increasingly higher than variable, and while I cannot recommend fixed or variable to clients, I suspect we won’t be seeing any fixed rates chosen by clients,” Ms Avis said.

She pointed out that it’s going to be interesting seeing how the interest rates and financial landscape plays out in the short term and longer term.

“With negative gearing now gone borrowing capacity for investors has reduced, now owner-occupier lending capacity and investment lending capacity is the same for all new borrowings, although obviously we can still negative gear existing properties and those bought before 7.30pm on 12 May.”

Inflation takes a breather

The latest economic growth and household spending figures released Wednesday (3 June) offer some mixed signals.

Australian gross domestic product (GDP) rose just 0.3 per cent in the March quarter 2026 and 2.5 per cent compared to a year ago (seasonally adjusted, chain volume measure), according to figures released by the Australian Bureau of Statistics (ABS).

A slowing economy is usually a prompt for an easing of interest rate pressure but household spending continues to rise, which can add to the inflation that is inciting hikes in the official cash rate.

The Wednesday ABS data also showed the household saving to income ratio fell to 6.2 per cent, down from 7.0 per cent in the December quarter. This fall reflects the rise in household spending in nominal terms that outpaced the rise in household disposable income. Household disposable income was driven by a 1.2 per cent rise in compensation of employees while the increase in income tax and interest payments detracted from growth.

Inflation has eased to 4.2 per cent in the year to April, driven by the government’s fuel excise relief finally feeding through to lower petrol prices.

Borrowers can definitely keep the champagne on ice for now, with economists cautioning that the RBA may still need to hike interest rates later this year to tackle stubborn underlying inflationary pressures.

Warren Hogan, Managing Director, EQ Economics, was definitely telling borrowers to forget the bubbles. He has urged the RBA to act decisively and early on interest rates to bring what is still persistent inflation under control.

With headline inflation sitting at 4.6 per cent, Mr Hogan told media the RBA cannot afford to wait for a clear economic downturn before acting.

“Unless something happens that really forces the economy to turn down, like we’re seeing softness in the housing market and weak sentiment surveys — but the activity side of the economy seems to be holding up,” Mr Hogan said.

“So in the absence of a downturn, I think they’re going to have to raise rates again and probably a few times, so why not just get on with it?”

For Australian property investors, Mr Hogan’s comments reinforce the likelihood of further rate hikes in the coming months if economic activity remains resilient.

While some softening is evident in housing market sentiment and select segments, the broader economy has not yet slowed enough to rule out additional tightening.

Higher rates would increase borrowing costs for leveraged investors and could place further downward pressure on property prices, particularly in markets already showing signs of weakness.

They may, however, also help anchor inflation expectations and ultimately create a more stable environment for long-term investment decisions.

Editor’s note: This article was updated on 3 June to include newly released ABS household spending and GDP data.