Blog post by Empower Wealth

What Could Push Interest Rates Higher From Here?

Interest rates are once again front and centre for Australian households and investors.

As predicted, the RBA increased the cash rate by 0.25% in September to 4.60%, its highest level since 2011. At the same time, inflation has moved higher, with the latest monthly headline reading reaching 4.0%, above the RBA’s 2–3% target range.

So, where could interest rates go from here?

In its October 2026 market insights, Ascalon Capital looks at the forces keeping inflation elevated, what could drive further rate rises, and what might eventually cause the RBA to change course.

Want to dive deeper? Download the full October 2026 [Monthly Insights], [Global Markets Review] and [Asset Allocation Review] here for the latest analysis across interest rates, inflation and investment markets.

Key takeaways

Inflation remains the key driver of further rate hikes. Strong consumer demand, higher oil prices, fiscal spending and weak productivity have pushed inflation above the RBA’s 2–3% target. Further rate rises remain possible if inflation and demand don’t moderate.
Markets have already priced in further tightening. Rates markets expect at least two additional 0.25% hikes over the next 12 months. But market pricing doesn’t mean those hikes are a certainty.
Inflation pressures are coming from several directions. Domestic spending, rental costs, elevated oil prices, AI-related demand and weak productivity are all contributing to the inflation challenge.
Rate cuts would likely require a catalyst. A significant housing downturn, weakness in private credit, unemployment rising above 5%, or a reversal in AI-related demand could shift the outlook. Without a catalyst, an extended pause may be more likely once inflation begins to settle.
Higher bond yields could present opportunities for some investors. If government bond yields approach a peak, Australian government bonds could offer attractive yields and some downside protection as part of a diversified portfolio.

What is keeping inflation higher?

While inflation appeared to be heading in the right direction, renewed pressures are making the RBA’s job more difficult.

Strong consumer demand, higher oil prices, government spending and weak productivity are all playing a role. Rental costs continue to add pressure too, while growing global investment in AI is increasing demand and costs across technology and supply chains.

For now, that means further rate rises remain a real possibility.

But further hikes aren’t guaranteed

Higher rates are already putting pressure on other parts of the economy. Housing credit is slowing, unemployment has risen to 4.6%, and consumer and business confidence remain weak.

That balancing act is becoming increasingly important.

The RBA wants inflation back under control, but it also needs to consider what higher rates are doing to employment and the broader economy.

What could eventually bring rates down?

If inflation begins to settle, we may first see an extended pause rather than an immediate series of rate cuts.

A more significant deterioration in economic conditions could change that. A deeper housing downturn, weakness in private credit, unemployment rising above 5%, or easing AI-related demand are among the factors that could potentially shift the outlook towards lower rates.

For another perspective on what’s happening with interest rates, inflation and the Australian economy, Ben Kingsley and Evan Lucas unpack the RBA’s September 2026 moves here and explained what they could mean for Australian households in their RBA & Economic Update.

What does this mean for you?

The interest rate outlook remains uncertain. Inflation is still too high for the RBA to declare victory, but the impact of higher rates is increasingly being felt across households and the broader economy.

If cash flow is feeling tight, we’ve put together a short video series on How to Reduce Mortgage Repayments in Australia: 6 Practical Ways to Save with practical ideas that may help ease the pressure.

You can also explore Moorr’s MoneySTRETCH to see where you may be able to adjust your essential and discretionary spending, understand the potential impact on your cash flow, and see how long your available cash could last.

More broadly, rather than trying to predict exactly when rates will peak or fall, now could be a good opportunity to review your cash flow, debt, financial buffers and investment strategy, and consider how well your financial plan could hold up under different interest rate scenarios.

Because ultimately, we can’t control what the RBA does next. But we can make sure we’re financially prepared for whatever comes next.

If you’re juggling your mortgage, family commitments, retirement planning and lifestyle goals, you don’t have to work it all out on your own. Our Financial Planning Team at Empower Wealth can help you step back, look at your overall financial position and understand how the different pieces of your financial life fit together.

Request a free initial appointment by filling in the form below, and our team can help you explore what your next steps could look like.

This article draws on the October 2026 market insights and reports referenced above. The information provided is general in nature and does not take into account your personal objectives, financial situation or needs.

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Categories: Financial Planning, Investment Education

Tags: Cash Rate, Economic conditions, Interest Rates, Reserve Bank of Australia (RBA)