Introduction to Interest Rates
The recent surge in inflation has led to a reassessment of forecasts for the Reserve Bank’s cash rate by economics teams at major Australian banks. The consumer price index rose at an annual pace of 3.2 percent in the September quarter, up from 2.1 percent in June, while underlying inflation reached the top of the RBA’s 2-3 percent target band.
Impact on Interest Rate Forecasts
This significant increase in inflation has almost eliminated expectations of a November cut, with some prominent economists reevaluating their forecasts for the cash rate. Commonwealth Bank’s economics team has changed its previous rates call, now expecting the cash rate to remain steady at 3.6 percent, with no further cuts this cycle. Belinda Allen, the head of Australian economics at the CBA, stated that higher inflation and the cyclical upswing in demand, driven largely by consumption and housing, will lead the RBA to keep the cash rate in slightly restrictive territory.
Bank Forecasts
Westpac has put its interest rate call under review after the inflation read, having previously forecast three more cuts this cycle, with a good chance of one in November. Westpac chief economist Luci Ellis expects the RBA to keep the cash rate on hold next week and has thrown doubt on whether the central bank will deliver further easing. Even a February cut is far from certain now, given the size of the upside surprise this quarter. The earliest the Monetary Policy Board will be in a position to get more comfort on inflation is with the next quarterly print ahead of the February 2026 meeting.
NAB and ANZ Outlook
The National Australia Bank’s outlook for the cash rate remains unchanged, with NAB chief economist Sally Auld expecting another cut, but not until mid-2026. ANZ also reiterated its forecast for one more interest rate cut this cycle, with the cash rate on hold until at least February 2026. ANZ economists noted that not only had the trimmed mean come in above market and RBA expectations, but that the ABS had also revised up the previous quarter’s trimmed mean.
Conclusion
In conclusion, the rise in inflation has led to a significant shift in interest rate forecasts among major Australian banks. While some banks, like Commonwealth Bank, expect the cash rate to remain steady, others, like NAB and ANZ, still anticipate a rate cut, albeit at a later date. The Reserve Bank’s next interest rate announcement will be closely watched, and its quarterly Statement on Monetary Policy will provide further insight into the bank’s thinking on interest rates. As the economy continues to evolve, it is essential to monitor the developments in the interest rate landscape to make informed decisions about borrowing and saving.
