Outlook points to higher-for-longer rates, with tight labour conditions limiting relief for borrowers
The Commonwealth Bank of Australia (CBA) is maintaining its view that the Reserve Bank of Australia (RBA) is likely to raise the cash rate in February, despite a recent softening in annual wage growth.
The bank’s latest employment and wage data show annual wages growth at 3.1% in November and December, easing slightly from earlier in the year but still consistent with a labour market judged to be “slightly tight”. CBA continues to forecast a 25-basis-point increase in the cash rate to 3.85%, followed by an extended period on hold.
CBA’s monthly employment report and its Wage & Labour Insights series draw on de-identified salary flows across about 400,000 customer accounts, providing an early read on wages and jobs conditions ahead of official Australian Bureau of Statistics releases.
“Wage growth held steady in quarterly terms, but annual growth moderated a touch,” said Belinda Allen (pictured right), head of Australian economics at Commonwealth Bank. “The labour market remains tight, with limited spare capacity contributing to inflation that is still too high.
“We expect wages growth to remain around current rates of growth over the next year, and the RBA is expected to lift the cash rate in 2026.”
For mortgage borrowers, even a modest rate move would feed quickly into repayments. Analysis from Canstar indicates that a 0.25 percentage point increase in rates would add about $90 a month to repayments on a $600,000 home loan. For a $750,000 mortgage, monthly repayments would rise by around $112, and for a $1 million loan by approximately $150.
The timing of any move by the RBA is expected to hinge on incoming inflation data. The December quarter consumer price index, due on Jan. 28, is viewed as a key input to the February board meeting.
“We’re up against our speed limits, and we continue to think the Reserve Bank will need to do some fine-tuning in 2026,” Allen said. “Based on what they said in December, inflation is too high and we do think, based on the governor’s comments after that December board meeting, the hurdle to hike is probably lower than what we had anticipated.”
Headline inflation eased to 3.4% in November, down from 3.8% in October, but underlying measures remain above the midpoint of the RBA’s target band. Canstar noted that trimmed mean inflation has been at or above 3% for five consecutive months, suggesting policy may not yet be restrictive enough to bring inflation back to 2.5% on a sustained basis.
Meanwhile, CBA expects wage growth to hover near current rates over the next year, with the labour market remaining relatively tight even as hiring cools from the peaks of 2022 and 2023.
“As we move into 2026, we’ll be watching closely for any shifts in wage momentum or hiring activity,” Allen said. “Our data gives us an early read on the labour market, and right now it’s clear that resilience remains a defining feature, even as economic conditions evolve.”
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