Citi forecasts further Australian interest rate hikes

Citi has revised its forecasts for Australia's official cash rate, predicting back-to-back 25 basis-point increases in September and November. The bank adjusted its terminal rate forecast upward from 4.6 per cent to 4.85 per cent, pushing its expectation for the first rate cut out to the fourth quarter of 2027.

Senior economist Faraz Syed attributed this outlook to a ‘two-speed economy,’ where an AI-related investment boom is offsetting a housing correction while adding to capacity constraints. Other contributing factors include anemic productivity, a tight labor market, and elevated oil prices, which are expected to keep inflation stubbornly high.

The revisions follow warnings from Reserve Bank of Australia Deputy Governor Andrew Hauser that the central bank will not tolerate inflation remaining above target for a prolonged period. This stance has heightened fears of an imminent recession. Finance commentator Alan Kohler noted that if a rate hike occurs in September, as markets currently suggest, the negative sentiment could push Australia’s fragile economy into a recession.