Financial markets are pricing in a greater-than-even chance of another interest rate rise this month, despite the overwhelming majority of economists expecting the Reserve Bank to hold, setting up a finely balanced September decision for borrowers and the property sector.
The Reserve Bank of Australia is more likely than not to leave the cash rate at 4.35 per cent when it meets on September 29, according to the OurTop10 Rate Prediction Index (ORPI), but a widening divide between economists and financial markets points to considerable uncertainty over the outcome.
The index currently puts the probability of a hold at 62.4 per cent and the chance of a 0.25 percentage point rise at 35.6 per cent.
But underlying those figures is a striking disagreement. Of the 12 economists tracked by the index who have made a public call on the September meeting, 10 expect the RBA to leave rates unchanged.
Financial markets are taking the opposite view, with pricing in ASX 30-day interbank cash rate futures implying a 54 per cent chance of a rise.
ORPI weights market pricing and its economist panel equally, placing its headline probability between the two signals.
OurTop10 Head of Research Mansour Soltani said the divergence was significant.
“There is a lot of daylight between what the market is pricing and what the economists are saying, and that does not happen often. One of them is going to be wrong. Borrowers should at least know the argument is going on.”
“On these numbers a rise is better than a one-in-three shot. That is not something you leave out of the household budget.”
The uncertainty surrounding the September meeting will be closely watched across the real estate industry, with another increase in the cash rate potentially adding to mortgage servicing costs and influencing borrowing capacity and buyer sentiment heading further into the spring selling season.
The divide emerged following the release of July inflation figures on August 26.
Headline inflation eased to 3.5 per cent from 3.8 per cent, while the trimmed mean – the measure watched most closely by the Reserve Bank – remained at 3.6 per cent and above the RBA’s 2 to 3 per cent target band.
The figures have prompted sharply different forecasts from some of Australia’s biggest financial institutions.
NAB changed its forecast within a day of the inflation release and now expects a rise in September, while Deutsche Bank has made the same call.
ANZ, Commonwealth Bank, UBS and Goldman Sachs have shifted their expected timing for an increase to November, while Westpac continues to expect no increase in 2026.
Mr Soltani said the range of forecasts highlighted how finely balanced the outlook had become.
“Every one of those banks read the same inflation print and came out somewhere different on timing. September is a live meeting.”
“The Board has already raised rates three times this year. It has to weigh what those increases are doing to household budgets against inflation that has not come back to the target band.”
While the index favours a hold in September, the release notes the call is about timing rather than the broader direction of rates, with three of the 12 tracked forecasters already predicting an increase at the following RBA meeting on November 3.
The September decision will also mark the first meeting using ORPI’s rotating panel system.
Ten forecasters are drawn from a pool of 30 Australian economists and ranked according to the accuracy of their previous calls, with no more than two representatives from any single institution.
All 10 panel positions have been filled for September, with eight forecasting a hold and two – NAB’s Sally Auld and Deutsche Bank’s Phil O’Donaghoe – expecting a rise.
To qualify, economists must have a dated public prediction on record 14 days before the RBA decision, with calls frozen 24 hours before the Board meets.
ORPI combines forecasts from its economist panel with market pricing from ASX 30-day interbank cash rate futures, with the two signals given equal weight, although market pricing carries more weight when it is strongly one-sided.