Introduction to Interest Rates
High levels of mortgage stress and extreme pressure placed on households by a crippling cost of living crisis have seen the nation hanging on every word of RBA Governor Michele Bullock in 2025. After a brutal rate hiking cycle of 13 increases between 2022 and 2023, the cash rate finally began to come down from its 4.35 per cent high point in February this year. Three cuts later, the figure now sits at 3.60 per cent, and for much of the year, the conversation was focused on how much further it would reduce, rather than whether it would be cut at all.
Expert Predictions
Now, a resurgent inflation has many commentators worried that the cutting cycle is over and we are even in danger of the RBA’s next move being an increase. As we prepare for a fascinating and uncertain 2026, experts are predicting what the next 12 months will hold for interest rates. The nation’s biggest banks have walked back their earlier forecasts for further rate cuts, after having their minds changed by recent inflation numbers. ANZ was the most recent of the big banks to predict the cutting cycle had now ended and the cash rate would remain at 3.60 per cent for the long haul.
Big Four Banks’ Forecasts
ANZ’s revised forecast saw it join CBA and NAB in predicting the cash rate will now remain unchanged for the foreseeable future. Only Westpac is still relatively bullish on cuts, predicting two more in 2026 to see the cash rate bottom out at 3.1 per cent. Westpac chief economist Luci Ellis believes inflationary policy is “still a bit tight”. “We see some modest softening in the labour market already underway and likely to continue. And if inflation plays out according to our forecasts, which have trimmed mean inflation troughing at around 2.3%, then the RBA will have to cut some more,” Ms Ellis said.
Rate Expectations
A Finder survey on the cash rate trajectory for 2026 saw 29 per cent of experts predict at least one rate hike in 2026. But it seems the 35 commentators surveyed are pretty evenly split, with the same percentage predicting at least one cut in the same period. Finder head of consumer research Graham Cooke described the survey as “the most divided panel I’ve seen in years”. When asked where rates would be by December 2026, experts were more closely aligned, with most predicting the cash rate to remain at 3.6 per cent.
Borrowers’ Next Steps
Canstar’s data insights director Sally Tindall said the uncertainty around rates movements means borrowers should take steps to prepare themselves for the year ahead. “The RBA is not going to spring a rate hike on borrowers without ample warning, however, if the central bank isn’t on track to get inflation back into the target band as forecast, then it could be forced to act,” Ms Tindall said. Borrowers can take control of their own equity by checking how much they still owe on their mortgage, minus this from a current estimate of how much their property is worth, to determine their equity.
Conclusion
In conclusion, the future of interest rates in 2026 is uncertain, with experts divided on whether the RBA will cut or hike rates. Borrowers should prepare themselves for the year ahead by taking control of their own equity and being mindful of their spending. With the cash rate currently at 3.60 per cent, it is essential for borrowers to stay informed and adapt to any changes in the market. By understanding the predictions of experts and taking steps to prepare, borrowers can navigate the uncertain landscape of interest rates in 2026.
