Citi Forecasts 2 More RBA Rate Hikes in 2026: What It Means for Investors and Your Money

Quick answer: Citi is forecasting two additional RBA (Reserve Bank of Australia) rate hikes before the end of 2026, which would push the cash rate higher and put further pressure on borrowers, growth stocks, and the broader ASX. Understanding the likely ripple effects is critical for investors and mortgage holders alike.

Australian investors have been through a bruising rate cycle, and just when many were hoping for relief, Citi has thrown a bucket of cold water on those expectations. The global investment bank is now forecasting two more rate hikes from the Reserve Bank of Australia before 2026 is out — a call that, if correct, will reshape borrowing costs, asset prices, and the outlook for everything from ASX growth stocks to your home loan.

This article breaks down why Citi holds that view, what higher rates historically do to different parts of the share market, and how you can stress-test your own financial position before the next RBA board meeting.

Why Is Citi Forecasting More RBA Rate Hikes?

Citi's call didn't come out of thin air. It reflects a specific reading of the Australian macroeconomic landscape that diverges from the more optimistic consensus that had been building earlier in 2026.

Inflation Is Still Running Hot

The headline driver is inflation. Despite the RBA's extended tightening cycle, underlying inflation — particularly in services — has proven stickier than the central bank's own models predicted. Rent inflation, insurance costs, and domestic services spending have all remained elevated, meaning the disinflationary progress seen in goods (clothing, electronics, imported products) has not been enough to bring the trimmed mean CPI (Consumer Price Index, stripped of volatile items) comfortably back into the RBA's 2–3% target band.

Citi's economists argue that the labour market, while softening at the edges, is still tight enough to sustain wage growth that feeds services inflation. Until that loop breaks more decisively, the RBA has cover — and arguably obligation — to keep the pressure on.

The RBA's Own Rhetoric

The RBA under its current structure has been at pains to signal that it will not ease prematurely. Board statements have consistently included language around inflation remaining "above target" and the bank being "vigilant" — central-bank code for "don't rule out more hikes." Citi's analysts have taken that language seriously, building two additional 25-basis-point (0.25%) hikes into their base case rather than treating it as a tail risk.

Global Context: The Fed Is Not Cutting Fast Enough

Citi's global macro team has also been more hawkish than many peers on the US Federal Reserve. When the Fed cuts rates, it eases pressure on the Australian dollar — a weaker AUD makes imports more expensive and adds to domestic inflation. If the Fed holds rates higher for longer, the RBA has less room to diverge from that posture without putting downward pressure on the AUD and importing extra inflation. That global backdrop gives the RBA reason to stay the course.

What Two More Rate Hikes Would Actually Mean

Let's put some numbers around the scenario. If the RBA delivers two additional 25-basis-point hikes, the cash rate would climb by a further 0.50 percentage points from wherever it sits at the time Citi published this forecast.

Impact on Mortgage Repayments

Variable-rate mortgage holders feel RBA hikes almost immediately, typically within 30 days as lenders pass through the change. Banks are not legally required to pass on the full hike, but in practice they almost always do.

Here's an illustrative worked example of what two more hikes could add to monthly repayments:

Loan Balance	Current Monthly Repayment (illustrative)	Extra Monthly Cost (+0.50%)	Extra Annual Cost
$500,000	~$3,100	~$130	~$1,560
$700,000	~$4,340	~$182	~$2,184
$900,000	~$5,580	~$234	~$2,808
$1,200,000	~$7,440	~$312	~$3,744

Note: These figures are illustrative estimates based on a 25-year remaining loan term. Actual repayments depend on your specific loan terms, lender, and rate.

The figures above assume a standard principal-and-interest variable mortgage. For interest-only loans, the monthly cash flow hit is smaller in dollar terms but the long-run cost is higher.

If you want to model your own mortgage under different rate scenarios, use the Mortgage Calculator to see exactly what an additional 50 basis points would add to your monthly repayments.

Impact on Borrowing Power

Higher rates don't just affect existing borrowers — they compress the borrowing capacity of new buyers. Lenders apply a serviceability buffer (currently at least 3 percentage points above the loan rate) to assess whether borrowers can service their debt if rates rise. As the actual rate goes up, both the assessed floor rate and the repayment at that floor rate increase, squeezing the maximum loan size a given income can support.

Use the Borrowing Power Calculator to see how your household income translates to maximum borrowing capacity under current rate assumptions.

How Higher Rates Affect the ASX Share Market

This is where it gets particularly relevant for investors. Interest rate changes flow through to the share market through several distinct channels. Not all sectors are equally affected, and understanding the transmission mechanism helps you make more informed decisions.

The Discount Rate Effect on Growth Stocks

The most mechanical relationship between rates and shares is through the discount rate — the rate used to convert future earnings back into today's dollars. When rates rise, the discount rate rises, which reduces the present value of future cash flows. This disproportionately hits growth stocks, where a large share of their theoretical value is based on earnings many years in the future.

In practical terms: a technology company forecast to generate strong earnings in 2030 and 2031 is worth less today when you can earn a higher guaranteed return on a term deposit or government bond. The opportunity cost of holding a speculative growth stock rises with interest rates.

Australian tech and high-growth names on the ASX have historically been sensitive to this effect. When rates were rising sharply in 2022 and 2023, many ASX technology-adjacent stocks underperformed the broader market significantly.

Banks: A Mixed Picture

Australian banks are often cited as beneficiaries of higher rates because their net interest margin (NIM — the difference between what they charge borrowers and what they pay depositors) tends to expand when rates rise. And to some degree that's true in the early stages of a rate cycle.

However, there's a countervailing force: credit quality. As rates climb and borrowers face higher repayments, mortgage stress increases, and the risk of loan defaults rises. If the RBA hikes two more times and unemployment ticks up as a result, the big four banks (CBA, NAB, ANZ, Westpac) could face higher bad debt provisions that offset the NIM benefit.

The balance between these two forces is what makes bank stocks a nuanced call in a late-cycle rate environment.

Property-Sensitive Stocks and REITs

Listed property trusts (A-REITs — Australian Real Estate Investment Trusts) are particularly sensitive to interest rate changes for two reasons:

Debt costs: REITs carry significant debt and refinance it regularly. Higher rates mean higher interest bills, compressing distributable income.
Cap rate expansion: When risk-free rates (government bonds) rise, investors demand a higher yield from property, which means they'll pay less for the same rental income — effectively pushing property valuations lower.

A-REITs typically underperform when rate expectations are rising and outperform when rate cuts are priced in. If Citi is right and two more hikes are coming, A-REITs could face a further headwind before any recovery.

Defensive Sectors: Where Investors Have Hidden

Historically, when rate rises are expected to slow the economy, investors rotate into defensive sectors — healthcare, consumer staples (supermarkets, food producers), and utilities. These businesses generate relatively stable earnings regardless of the economic cycle.

Companies like those in healthcare diagnostics, or grocery retail, tend to hold up better in a rising-rate environment because their revenues are not closely tied to consumer confidence or business investment. That said, they are not immune — high debt loads, even in defensive businesses, become more expensive to service.

What This Means for Your Investment Strategy

Knowing that rate hikes are potentially coming doesn't tell you to do anything specific — markets may have already priced in this scenario (or overpriced it). But it does help frame some strategic considerations.

Duration Risk in Your Portfolio

Duration is a concept that applies to both bonds and growth stocks. High-duration assets are those whose value is highly sensitive to changes in interest rates. In a still-hiking environment, reducing exposure to very high-duration assets — long-dated bonds, speculative tech with no near-term earnings, heavily indebted property vehicles — is a common risk-management approach.

This doesn't mean selling everything growth-oriented. It means being aware of where your portfolio sits on the duration spectrum and whether you're comfortable with that in the context of Citi's forecast.

Cash and Term Deposits as a Genuine Alternative

One underappreciated effect of higher rates is that cash and term deposits become a real investment option again, rather than a parking space for funds awaiting deployment. With term deposit rates moving in line with the cash rate, savers can earn a meaningful, guaranteed return.

This shifts the risk/reward calculus for equities. If you can earn 4.5–5%+ per annum on a term deposit with zero risk to principal, the bar for holding a volatile stock that might deliver 7–8% becomes meaningfully higher. Many investors don't consciously make this comparison — but markets do, constantly.

The Term Deposit Calculator can show you exactly what a given sum earns at different rates and terms, which is a useful reference point when comparing guaranteed returns to equity risk.

Stress-Testing Your Broader Financial Position

Before adjusting any investment position based on rate forecasts, it's worth stress-testing your overall balance sheet. Rising rates affect your investments and your liabilities simultaneously. A household with a $900,000 mortgage, a leveraged investment property, and an equity portfolio concentrated in growth stocks faces compounding pressure from each additional rate hike.

Mapping out your income, debt repayments, and investment drawdown scenarios at different rate levels gives you a clearer picture of your actual risk exposure — as distinct from the theoretical market risk of any individual holding.

Should You Trust Citi's Forecast?

That's a fair question, and the honest answer is: treat it as one informed input among several, not as gospel.

Bank economic forecasts have a mixed track record. Citi, like every major investment bank, has sophisticated economists and proprietary models — and has also been wrong about rate timing before, as has virtually every forecaster. The RBA itself regularly updates its own forecasts as new data arrives.

What the Market Is Currently Pricing

One useful cross-check is to look at what the market itself implies for rate movements. Interest rate futures and overnight index swaps (OIS) encode the collective bet of professional traders on where rates will go. When Citi's forecast diverges significantly from market pricing, it's either because they see something the market doesn't, or they're wrong. Both happen.

If you're making financial decisions — whether about your mortgage structure, your portfolio allocation, or when to lock in a fixed rate — it pays to look at the range of credible forecasts rather than anchoring to any single call.

The Risk of Being Early (or Wrong)

One scenario that investors often overlook: what if the RBA doesn't hike twice? What if inflation surprises to the downside and the central bank pauses or cuts instead? Markets would rally, growth stocks and A-REITs would outperform, and anyone who repositioned defensively based on Citi's call would underperform.

This is not an argument to ignore the forecast. It's an argument for position sizing and diversification rather than wholesale portfolio overhauls based on a single bank's view.

Key Sectors and What to Watch

If Citi's forecast proves correct and two hikes land before year-end, here are the key data points and sectors to monitor:

Sector/Asset	Rate Hike Impact	Key Watchpoint
ASX Growth/Tech	Negative (higher discount rate)	Revenue growth vs. valuation multiples
A-REITs	Negative (cap rates expand, debt costs rise)	Debt maturity schedules, occupancy rates
Big 4 Banks	Mixed (NIMs up, bad debts risk rising)	Loan arrears data, NIM guidance
Consumer Discretionary	Negative (disposable income squeezed)	Retail sales volumes, consumer confidence
Healthcare & Staples	Relatively defensive	Earnings stability, dividend yield
Term Deposits/Cash	Positive (higher yields)	Headline TD rate vs. equity earnings yield

Frequently Asked Questions

What is the RBA cash rate and why does it matter?

The RBA cash rate is the interest rate the Reserve Bank of Australia sets for overnight lending between banks. It's the foundational rate that flows through to mortgage rates, savings rates, and broader financial conditions across Australia. When the RBA raises the cash rate, borrowing becomes more expensive and saving becomes more rewarding.

How many times has the RBA raised rates in this cycle?

The RBA began its current tightening cycle in May 2022, delivering a rapid series of hikes to combat post-pandemic inflation. By 2026, the cumulative increase has been significant — among the most aggressive rate cycles in recent Australian history. The Citi forecast of two further hikes would add to that already substantial total.

Will Australian house prices fall if there are two more rate hikes?

Higher rates generally put downward pressure on property prices by reducing borrowing power and increasing holding costs. However, property prices also depend on housing supply, migration, and local demand factors. Two more hikes of 0.25% each would compress borrowing capacity and could soften prices in overextended markets, but a crash is not a foregone conclusion — particularly in supply-constrained cities.

Which ASX stocks are most vulnerable to further rate hikes?

Stocks with high debt loads, low or no current earnings (relying on future growth for their valuation), and those in sectors sensitive to consumer spending are generally most vulnerable. This includes speculative growth stocks, some A-REITs with short-dated debt, and consumer discretionary retailers. Defensive stocks — healthcare, supermarkets, utilities — tend to be more resilient but are not immune.

How should I adjust my superannuation investment options if rates rise?

This depends entirely on your age, time horizon, and risk tolerance — and is a question a licensed financial adviser is best placed to answer for your specific circumstances. Generally speaking, higher rates affect different super investment options differently: balanced or growth options with significant equity exposure may face short-term headwinds, while stable or conservative options with more fixed-income exposure respond differently based on the duration of those holdings.

Is now a good time to fix my mortgage rate?

Fixed-rate decisions involve a trade-off between certainty and flexibility. If Citi is right and rates rise further, fixing now (at whatever rate lenders offer today) could look sensible in hindsight. But if rates plateau or fall, you'd be locked into a rate higher than what variable borrowers pay. Use the Mortgage Calculator to compare your current variable repayments against what a fixed rate would cost over different periods.

Does the RBA meet every month?

No. As of recent changes to its meeting schedule, the RBA board meets eight times per year rather than monthly. This means the timing of any additional hikes is spread across fewer decision points, and each meeting carries more weight than it did under the old monthly schedule.

Related Calculators and Guides

Mortgage Calculator — Model your repayments under different interest rate scenarios
Borrowing Power Calculator — See how rate changes affect your maximum loan size
Term Deposit Calculator — Compare guaranteed returns as cash rates rise
Investment Property Cash Flow Calculator — Stress-test your property investment at higher rates
Savings Rate Calculator — Understand how higher deposit rates change your savings trajectory
ETF Calculator — Model long-term growth from ETF investing in different rate environments

Interest rate forecasts and RBA decisions are current as at September 2026 and change regularly — always verify the current cash rate and lender rates before acting.

This article is for general information only and does not constitute financial, tax or legal advice. Individual circumstances vary. Consult a registered tax agent or licensed financial adviser before making decisions based on this information.