More than one rise on cards, as fixed mortgage rates start to climb
Commonwealth Bank has completed its 2026 interest rate forecast reversal, with analysts now anticipating a 25-basis-point increase from the Reserve Bank of Australia (RBA) in February.
It marks a stark contrast to earlier predictions of further monetary easing in the new year, underscoring just how suddenly the macroeconomic environment has shifted in the second half of 2025.
“The economy has picked up more momentum than expected, and that strength is keeping inflation from easing,” said CBA head of Australian economics Belinda Allen in a Tuesday note.
She believes “a small rate increase in February” will help guide inflation back to the RBA preferred target range of 2-3%.
“Inflation has proven more stubborn than forecast and we see signs of inflation persisting. That’s a key reason the RBA may need to act,” Allen continued.
Trimmed mean inflation (CBA’s preferred inflation measure), shot up to 3% in the September quarter, leading the bank’s economists to believe it could take until late 2027 for inflation to return to the middle of the 2-3% goldilocks zone.
Economic growth, meanwhile, is expected to reach 2.4% in early 2026, “a rate that’s slightly above the pace the economy can comfortably sustain, sometimes called its ‘speed limit’", CBA added.
While Australia is entering 2026 “in solid shape… a modest rate rise in February looks likely as the central bank works to keep price pressures in check while supporting a steady, sustainable pace of growth”.
Allen added: “A small rate rise next year would help set the foundation for a steady, sustainable period of growth.”
With sub-5% fix-rate loans drying up on the mortgage market, borrowers are likely to be disappointed with CBA’s updated forecasts; to compound their fears, economists suggested that if household spending or business investment turns out even stronger than expected, “the RBA may need to raise rates more than once”. On the other hand, a cooler jobs market or a fasted fall in inflation could provide some potential relief.
CBA is not alone in turning hawkish on interest rate forecasts.
Westpac recently increased some of its fixed home loan rates by up to 0.35 percentage points, marking the second time in just over a month that it has raised fixed rates. Westpac’s lowest fixed home loan rate now sits at 5.49%.
For now, Westpac economists still anticipate two further cash rate cuts in 2026, although they agree that “the probability of a rate hike has risen”.
Canstar data shows that only 29 lenders are still offering at least one fixed rate below 5%, down from 43 a month earlier. CBA’s cheapest fix is currently 5.34% for its three-year product, per Canstar data.
