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Westpac chief economist Luci Ellis has forecast rate cuts. Picture: Jane Dempster<\/p>\n
High levels of mortgage stress and extreme pressure placed on households by a crippling cost of living crisis saw the nation hanging on every word of RBA Governor Michele Bullock in 2025.<\/p>\n
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.<\/p>\n
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.<\/p>\n
Now, a resurgent inflation has many commentators worried that the cutting cycle is over and we are even in danger of the RBA\u2019s next move being an increase.<\/p>\n
As we prepare for a fascinating and uncertain 2026, I took a look at what the experts are predicting for interest rates over the next 12 months.<\/p>\n
And it makes for pretty grim reading, apart from one beacon of hope among our prominent lenders.<\/p>\n
Three out of the big four agree<\/p>\n
The nation\u2019s biggest banks have walked back their earlier forecasts for further rate cuts, after having their minds changed by recent inflation numbers.<\/p>\n
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.<\/p>\n
\u201cWe no longer see one final rate cut from the RBA in the first half of 2026 given recent inflation pressures,\u201d ANZ head of Australian economics Adam Boynton said. \u201cWith growth around potential, the activity case for further easing is also less clear.\u201d<\/p>\n
ANZ\u2019s revised forecast saw it join CBA and NAB in predicting the cash rate will now remain unchanged for the foreseeable future.<\/p>\n
MORE: Home loan trap taking years to escape<\/a><\/p>\n Luci Ellis believes inflationary policy is \u201cstill a bit tight\u201d. Picture: Martin Ollman<\/p>\n Only Westpac is still relatively bullish on cuts, predicting two more in 2026 (likely May and August) to see the cash rate bottom out at 3.1 per cent.<\/p>\n Westpac chief economist Luci Ellis told realestate.com.au she believes inflationary policy is \u201cstill a bit tight\u201d.<\/p>\n \u201cWe 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,\u201d Ms Ellis said.<\/p>\n \u201cHowever, if we\u2019re wrong, and inflation plays out according to the RBA\u2019s forecast, then rates will be on hold.\u201d<\/p>\n Rate expectations<\/p>\n A Finder survey on the cash rate trajectory for 2026 saw 29 per cent of experts predict at least one rate hike in 2026.<\/p>\n But it seems the 35 commentators surveyed are pretty evenly split, with the same percentage predicting at least one cut in the same period.<\/p>\n Finder head of consumer research Graham Cooke described the survey as \u201cthe most divided panel I\u2019ve seen in years\u201d.<\/p>\n \u201cNobody knows which way the RBA will go next,\u201d he said. \u201cBorrowers should tread carefully over the festive period. You don\u2019t want to go into the New Year with a Christmas debt hangover, especially when your mortgage could be getting more expensive.\u201d<\/p>\n When asked where rates wold be by December 2026, experts were more closely aligned.<\/p>\n \u201c3.6 per cent\u201d was the short response from AMP\u2019s Shane Oliver.<\/p>\n Tim Reardon of the Housing Industry Association elaborated a bit further.<\/p>\n \u201cUnchanged from today,\u201d he said. \u201cThe cash rate remains high. The economy is likely to remain strong given elevated levels of government spending and population growth. This will see CPI elevated, and the cash rate contractionary.\u201d<\/p>\n<\/p>\n