Major Bank's New Rate Warning Signals Potential Challenges for Millions of Australians

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Interest rates could peak at an 18-year high in a matter of months, according to modelling from one of Australia’s biggest banks.

Westpac, citing the continuing war in the Middle East and high oil prices, is now forecasting mortgage holders will be hit by three more rate hikes â in May, June and August â after already having two to start 2026.

The forecast for future interest rate hikes has increased, now predicting two additional rises than previously anticipated.

Westpac predicts more interest rate pain could be on the way for Australians. (Getty)

Interest rates, which stood at 3.60% at the end of 2025, have already climbed to 4.15%. With three more projected increases, rates could reach 4.85% by August—levels unseen since the latter part of 2008.

Westpac chief economist Luci Ellis said even government measures like halving the fuel excise, announced today, may not halt the inevitable.

“This adjustment reflects the prolonged disruption and slow recovery in fuel supply, notably with the Strait of Hormuz being effectively closed for eight weeks and traffic only gradually picking up afterward,” explained an expert.

The expert further noted that there has been an unexpectedly swift impact of higher fuel and oil-derived product costs on other prices throughout Australia.

While the introduction of the fuel excise is expected to temper the short-term forecast for headline inflation, it is still projected to peak at 5.4%.

She said she felt the Reserve Bank of Australia (RBA) would have no choice but to pass on the pressure to millions of Australians in the form of a rate rise.

“The fuel excise announcement doesn’t affect the prices of other oil-related products, such as aviation fuel and various plastics, nor does it influence price hikes resulting from damage to gas and other production facilities in non-combatant Gulf states,” the expert added.

Inflation currently sits at 3.7 per cent, although the latest figures are for February and therefore don’t take into account the economic shock caused by the Middle East conflict.

Ellis believes the RBA, Governor Michele Bullock pictured here, believes the RBA could feel they have little choice as inflation continues to rise. (Louise Kennerley)

“The (fuel excise) announcement also does not affect prices of other oil-related products, including aviation fuel and various plastics, or any price increases from damage to gas and other production facilities in non-combatant Gulf states,” Ellis said.

She also said the cash rate rising could lead to higher unemployment, up to five per cent, and that Australia’s economic growth would most likely slow.

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