No ‘real chance’ of a rate cut this year, says economist
Australia’s largest lender expects mortgage borrowers to face another period of rising interest rates in 2026, with fresh Reserve Bank of Australia (RBA) increases projected despite last year’s easing cycle.
In 2025, the RBA delivered three cash rate cuts, taking the policy rate to 3.6%, its lowest point since 2023. That relief may prove short-lived, with major bank forecasts now pointing to renewed tightening as inflation proves persistent.
Commonwealth Bank of Australia (CBA), in its latest Economic Insights report, projects an imminent 25-basis-point increase as part of efforts to contain price growth. On a $1 million home loan, such a move would add about $154 to monthly repayments, putting further pressure on highly leveraged owner-occupiers and investors.
The report anticipates only a limited tightening cycle rather than a prolonged series of increases, but still expects the cash rate to reach 3.85% by the end of 2026. “Notably, there is a broad-based acceleration in inflation occurring against a backdrop of a still tight labour market,” said analysts in the Economic Insights report. “The breadth of price increases and the resilience of economic activity suggest that underlying inflationary pressures have broadened and lifted.”
NAB’s rate outlook is more front-loaded, with the bank forecasting two 25-basis-point hikes before June, in February and May. For brokers and lenders, such a profile would bring forward serviceability challenges for new and refinancing customers, particularly those already close to assessment rate limits.
Some economists remain cautious about how far the RBA will need to go, pointing to external factors as the main risk to the inflation trajectory. “I think any sort of real concerns about inflation are more from what might happen overseas and sort of imported inflation, but I would suspect very much, as the Reserve does, that inflation will moderate down to below three per cent over this year,” Greg Jericho, chief economist at the Australia Institute, told the Daily Mail.
Jericho warned that if global shocks drive inflation higher, the central bank may respond by lifting rates again or holding the cash rate at restrictive levels for longer. He expects at least one additional increase by mid-year, while emphasising that the current environment is different from the rapid tightening phase seen earlier in the decade.
Looking ahead, Jericho does not foresee an easing bias emerging soon. “There was no ‘real chance’ of a rate cut this year,” said Greg Jericho, chief economist at the Australia Institute.
ANZ senior economist Adelaide Timbrell and REA senior economist Anne Flaherty have similarly argued that it will take time for inflation to return to the RBA’s 2%–3% target band, suggesting policy will need to remain restrictive for an extended period.
While Westpac and ANZ are currently projecting that the cash rate will stay on hold, both banks have stepped back from earlier expectations of cuts, reinforcing the message that mortgage rates are likely to remain elevated into 2026. For mortgage professionals, the consensus points to a sustained period of higher repayments, tighter borrowing capacity and increased stress among rate-sensitive borrowers.
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