Introduction to Interest Rates
The Reserve Bank of Australia (RBA) is set to make its latest interest rate decision next week, and it’s looking like it could be a big one for Aussie mortgage holders. The central bank’s decision will have a significant impact on borrowers, and there’s speculation that rates might increase.
What to Expect from the RBA
Unfortunately for borrowers, the market believes there’s a higher chance of a rate hike next week than not. According to the latest ASX 30 Day Interbank Cash Rate Futures February 2026 contract, the market is pricing in a 67% probability of a 25 basis point increase to 3.85%. This means that borrowers might have to pay more on their mortgages.
Expert Opinion
The team at Westpac Banking Corp agrees with the market and believes that recent economic data points to a rate hike at next week’s meeting. Westpac’s chief economist, Luci Ellis, who used to work as assistant governor at the RBA, commented on the bank’s weekly economic report. She said that when the economy is close to full employment and full capacity utilization, it’s hard to know which side of the line it’s on. Inflation outcomes are the best guide in this situation, and with trimmed mean as the clearest signal of the underlying inflation trend, the 0.9%qtr, 3.4%yr quarterly result in the December quarter implies that the RBA is likely to raise rates at the February meeting.
Possibility of Rates Being Kept on Hold
However, Ellis notes that there’s still a small chance that interest rates could be kept on hold. She adds that there’s a small chance they might hold, though it would be a split decision, and the Board is likely to debate the merits of holding versus raising the cash rate at the meeting. The run of quarterly data might not quite meet the test, though the case can be made that it does. There are also arguments to be cautious given that the new monthly collection has made the inflation data harder to interpret.
What’s Next for Rates
The good news is that Westpac believes this is where the rate hikes stop. It’s forecasting interest rates to stay on hold at 3.85% through to late 2027, before starting to retreat to 3.35% by early 2028. This means that borrowers might not have to worry about further rate hikes in the near future.
Conclusion
In conclusion, next week’s interest rate decision by the RBA is expected to have a significant impact on Aussie mortgage holders. While there’s a chance that rates might increase, Westpac believes that this is where the rate hikes stop. Borrowers can expect interest rates to stay on hold for a while before starting to decrease. It’s essential for borrowers to stay informed and plan accordingly to manage their mortgages effectively.
