A rate rise tomorrow is all but locked in. How many more might there be? - ABC News & Headlines – Australian Broadcasting Corporation

Interest rate rises affect those with mortgages over their houses the most. (ABC News: John Gunn)

The Reserve Bank is meeting tomorrow for the sixth time this year, and both financial markets and economists think it is almost certain that it will raise interest rates for the fourth time.

Another standard 25-basis-point rate hike tomorrow would take the RBA's cash rate target from 4.35 per cent to 4.6 per cent, the highest level since the start of November 2011.

So, how does the bank make its decision, what does it mean for your mortgage and how much higher do experts think interest rates might go?

This afternoon, the RBA's Monetary Policy Board will start a two-day meeting to decide the next move in interest rates.

Ahead of the meeting, the nine board members will have received briefing papers from Reserve Bank staff to help them understand current economic conditions and RBA staff views about the outlook.

However, at this meeting the board members will not receive a full updated economic forecast from the RBA's economics team, as this is only done on a quarterly basis in the Statement on Monetary Policy. The next updated forecast will come in November, which is why many analysts previously thought the bank might wait until then for a rate rise.

Staff briefings generally take place on the Monday, allowing the board members to think about their decision overnight before they reconvene on Tuesday morning to discuss further and then cast their votes on what to do with interest rates.

Following that decision, which is made by majority (the RBA governor has a casting vote if needed), the bank's staff will prepare a short statement to be released with the decision at 2:30pm (AEST), which includes the vote tally but not how particular individuals voted.

The governor then does a press conference at 3:30pm to explain the decision in more detail and offer her thoughts about the economy.

Michele Bullock speaks after every Monetary Policy Board meeting, something recommended by the federal government's review into the bank. (ABC News: John Gunn)

Markets are pricing the probability of a rate hike at about 90 per cent.

That is not surprising, given that all 29 economists surveyed by Bloomberg predict a rate rise to 4.6 per cent tomorrow, including all four of Australia's major banks.

However, if there is a silver lining for mortgage borrowers, it is that the majority of those analysts expect the RBA to be done with hikes after tomorrow.

AMP's chief economist Shane Oliver summed up the majority view, saying Tuesday's vote may not be unanimous, although the RBA is likely to warn after the meeting that it may need to raise rates further still.

"But by the time it gets to the November meeting there is likely to be more evidence of a cooling economy, falling home prices, a softer jobs market and rising recession risks, so we don't think a second hike let alone a third will be necessary," he wrote on Friday. 

ANZ is the only major so far officially tipping a November rise as well, with Bloomberg listing just HSBC and UBS as the other two banks tipping back-to-back hikes.

Money markets are much more aggressive, though, pricing in at least two more hikes and a better than 50 per cent chance of a third, which would take the cash rate above 5 per cent by the middle of next year.

The banks are already following that market pricing and their own forecasts by lifting fixed mortgage rates.

On Thursday last week, Macquarie Bank lifted fixed rates for the second time in three weeks, raising its rates by up to 0.2 of a percentage point.

CBA did something similar on Tuesday, joining Westpac, NAB and ANZ the week before, which had all hiked, in some cases by up to half a percentage point.

Canstar rate tracking shows 18 lenders have now increased at least one fixed term rate in September.

Canstar data insights director Sally Tindall said the fact that Macquarie has lifted its rate for a second time in the space of three weeks was a "troubling sign" borrowers could ultimately be in for not just one cash rate hike, but two before Christmas.

"Fixed rates are, in part, a bet on the future," she said last week.

Australians are bracing for one, maybe two interest rate rises before the end of the year. (ABC News: John Gunn)

A 0.25 percentage point rate hike in September, if passed on in full by banks, would add $91 to the monthly repayments on $600,000 loan.

And another 0.25 hike in November would add $92 on top of that.

Here's the most depressing part for borrowers. Across what would be five rate hikes in 2026, a fairly typical borrower could find themselves paying an extra $456 per month on their mortgage.

For someone on a $600,000 mortgage that means a rate hike tomorrow will see them paying nearly $4,400 a year in extra interest repayments on their loan.

It is not just existing mortgage borrowers hit by the rate rises though.

For prospective buyers, Canstar estimates that the borrowing capacity of someone on an average full-time wage of $108,650 would be reduced by more than $47,000, while a couple both on average wages would see a reduction of nearly $95,000.

That is a 9 per cent reduction in borrowing capacity since the start of the year and is one reason why property prices have fallen sharply since rates started rising.