Introduction to Interest Rates in 2026
Twelve months ago, mortgage holders were looking forward to a new year that promised to be full of interest rate cuts. However, the outlook now is considerably bleaker. This article will explore what we know about what interest rates might do in 2026.
Will Interest Rates Rise in 2026?
It’s possible that interest rates will rise in 2026, and some banks think we’ll get a hike as soon as February 3. The Reserve Bank of Australia (RBA) will be weighing up whether to hold or hike the cash rate early in 2026. Some economists have tipped a rate hike in 2026, citing hawkish comments from the RBA.
Predictions from Banks
Commonwealth Bank head of Australian economics Belinda Allen says the first meeting of the year will be a live one, and both CBA and NAB are predicting a 25-basis-point increase on the first meeting of the year. NAB has forecast even more pain, pencilling in a further cut in May. However, not all banks agree, with Westpac and ANZ predicting a year of holds.
Market Expectations
The market has been pricing in around a 27 per cent chance of a hike in February and an end-year cash rate of about 4 per cent. However, some economists disagree with this assessment, saying that the swing back to rate hikes is more a story for 2027. AMP chief economist Shane Oliver wrote, "We expect to see the cash rate remain at 3.6 per cent in 2026, with the swing back to rate hikes more a story for 2027."
Why Aren’t Interest Rates Expected to Come Down?
Casual observers, particularly those with a mortgage, might be wondering why we’re suddenly talking about the prospect of rate hikes, not cuts. The reason for the turnaround is an unexpected surge in inflation. Having fallen back into the central bank’s target band of 2-3 per cent, the consumer price index (CPI) jumped to 3.2 per cent in the September quarter and again to 3.8 per cent in October.
The Impact of Inflation
The data-driven RBA will get two new batches of inflation figures before its February decision – for November on January 7 and December on the 28th. If inflation cools off, so too will the chance of a rate hike. But if it comes in hot once again, then mortgage holders will have every right to feel nervous about the first rates decision of the year.
Conclusion
In conclusion, the outlook for interest rates in 2026 is uncertain, with some banks and economists predicting a rate hike as early as February. However, others disagree, saying that the swing back to rate hikes is more a story for 2027. The key to what happens early next year on rates will be the December quarter CPI inflation figures. Mortgage holders should keep a close eye on these figures and be prepared for any changes to interest rates. The information provided is general in nature only and does not constitute personal financial advice. Before acting on any information, you should consider the appropriateness of the information having regard to your objectives, financial situation, and needs.
