{"id":631009,"date":"2026-09-21T02:48:21","date_gmt":"2026-09-21T02:48:21","guid":{"rendered":"https:\/\/www.newsbeep.com\/ie\/631009\/"},"modified":"2026-09-21T02:48:21","modified_gmt":"2026-09-21T02:48:21","slug":"interest-rates-why-they-are-likely-to-keep-going-up-not-down","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ie\/631009\/","title":{"rendered":"Interest rates: Why they are likely to keep going up, not down"},"content":{"rendered":"

September 21, 2026 \u2014 5:15am<\/p>\n

Save<\/p>\n

You have reached your maximum number of saved items.<\/p>\n

Remove items from your saved list<\/a> to add more.<\/p>\n

AAA<\/p>\n

Trying to guess where interest rates might move from month to month is a favourite pastime for many people in the financial markets (not to mention finance journalists).<\/p>\n

And lately, we\u2019ve all had plenty to speculate about. The surging oil price is making our inflation problem worse, prompting markets last week to price in up to three more Reserve Bank interest rate rises, which would push the cash rate above 5 per cent.<\/p>\n

\"MortgageMortgage holders hoping for some interest rate relief are going to be disappointed.Peter Rae<\/p>\n

As dramatic as that would be, however, this column isn\u2019t about what the RBA might do to interest rates this month or at the meeting after that. Rather, it\u2019s about where rates are likely to gravitate in years ahead, and I\u2019m afraid the recent news on that front is not what borrowers want to hear.<\/p>\n

Economists and market experts lately have predicted rising global interest rates in the long term, and that\u2019s likely to mean we end up with higher rates in Australia.<\/p>\n

Related Article\"RBA<\/a><\/p>\n

The causes are not only increasing inflation but also global \u201cmegatrends\u201d as the rise of artificial intelligence, growing geopolitical conflict and decarbonisation.<\/p>\n

What do these huge societal shifts mean for interest rates?<\/p>\n

Quite a bit, according to the \u201cneutral interest rate,\u201d an economic concept that\u2019s big in the world of central banking.<\/p>\n

Raising interest rates is akin to hitting the economic brakes and cutting rates is like stepping on the accelerator, while the neutral rate is just that \u2013 one that neither stimulates nor slows the economy.<\/p>\n

The dismal science of economics is known for being theoretical, but even here the concept of a neutral rate is fuzzy. It can\u2019t be measured or observed, as with the unemployment rate can, and it changes over time.<\/p>\n

\"AsAs fuel costs drive inflation higher, markets are betting on more RBA rate rises.Sitthixay Ditthavong<\/p>\n

Instead of measuring it, economists attempt to estimate where the neutral rate might be, and then use that in their analysis of whether interest rates should be more expansionary or contractionary.<\/p>\n

It can get highly technical, but the key point is this: market economists believe the neutral rate has been steadily rising in recent years.<\/p>\n

Commonwealth Bank\u2019s senior economist Trent Saunders last week said CBA had lifted its estimate of the current neutral rate to 3.85 per cent, up from 3.7 per cent in July and 3.25 per cent last October.<\/p>\n

These estimates have risen partly because our economy has been surprisingly resilient \u2013 it\u2019s held up better than expected against three rate rises this year, for example.<\/p>\n

Related Article\"Former<\/a><\/p>\n

There is a much bigger global story, as estimates of \u201cneutral\u201d interest rates have also risen around the world since the pandemic. This is where the huge trends of our era \u2013 such as AI, increased military spending and decarbonisation \u2013 come in.<\/p>\n

Economists say that what ultimately sets global interest rates in the long term is the balance between savings and investment.<\/p>\n

If you\u2019ve got too much saving for the amount of investment, the returns savers can expect for lending their money will be lower (that is, they\u2019ll have to accept a lower interest rate), and the converse if you have more investment than savings.<\/p>\n

From the late 1990s to the early 2020s, there was a long-term decline in global interest rates, and a popular explanation for this was the \u201csavings glut\u201d. This basically said there was too much saving compared to investment opportunities, which drove down global rates.<\/p>\n

Since the early 2020s, that trend appears to have stopped. There\u2019s now huge demand for savings to finance the massive flows of money into artificial intelligence and data centres, the green energy transition and the lift in defence spending by governments.<\/p>\n

\"RBARBA governor Michele Bullock is desperate to rein in inflation.Louie Douvis<\/p>\n

\u201cWe expect investment demand to remain strong relative to global saving, placing continued upward pressure on neutral rates,\u201d CBA\u2019s Saunders says.<\/p>\n

Westpac\u2019s chief economist Luci Ellis, who has been talking about a higher \u201cneutral rate\u201d for two years, lists various reasons why we\u2019re not going back to the low-rate world of the 2010s.<\/p>\n

There\u2019s been a societal shift toward greater expectation of government intervention in the economy \u2013 a trend that was solidified in the pandemic \u2013 which has meant higher spending by governments.<\/p>\n

Raising interest rates is akin to hitting the economic brakes and cutting rates is like stepping on the accelerator, while the neutral rate is just that \u2013 one that neither stimulates nor slows the economy.<\/p>\n

The growing rivalry between the US and China has prompted governments to spend more on defence and on supporting \u201cstrategic\u201d industries, such as certain types of manufacturing. The likes of AI and the energy transition are soaking up more private sector investment.<\/p>\n

Ellis\u2019 view is that we\u2019re not going back to the 2010s world of cheap money because it was an \u201caberration\u201d.<\/p>\n

So, that is why economists are convinced that the \u201cneutral interest rate\u201d will be higher than in the past.<\/p>\n

What does all this mean for borrowers?<\/p>\n

Put simply, it means the average level of interest rates in years to come is likely to be higher than it was in the low-interest rate world that preceded the COVID-19 pandemic.<\/p>\n

There will still be cycles of interest rate moves, meaning the RBA will raise and cut rates in response to shorter-term \u201ccyclical\u201d changes in the economy.<\/p>\n

\"TheThe global surge in spending on AI and data centres is hoovering up more savings.iStock<\/p>\n

But the \u201cstructural\u201d or deep-seated trend will be towards higher interest rates than we\u2019ve had in the past.<\/p>\n

And when the RBA does eventually cut interest rates in this cycle – a move some expect next year – it won\u2019t need to cut them by very much to take its foot off the brake and move into \u201cneutral territory.\u201d<\/p>\n

Related Article\"Sydney<\/a><\/p>\n

In short, even when the RBA is satisfied it has inflation under control, we should not expect rates to come down by much. And unless there\u2019s a crisis, they won\u2019t return to the rock-bottom levels of last decade.<\/p>\n

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning<\/a>.<\/p>\n

Save<\/p>\n

You have reached your maximum number of saved items.<\/p>\n

Remove items from your saved list<\/a> to add more.<\/p>\n

\"ClancyClancy Yeates<\/a> is deputy business editor. He has covered banking and financial services, and was previously national business correspondent in the Canberra bureau.Connect via X<\/a> or email<\/a>.From our partners<\/p>\n","protected":false},"excerpt":{"rendered":"September 21, 2026 \u2014 5:15am Save You have reached your maximum number of saved items. Remove items from…\n","protected":false},"author":2,"featured_media":631010,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[72,113,61,60],"class_list":["post-631009","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-ie","tag-ireland"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/631009","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=631009"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/631009\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/631010"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=631009"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=631009"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=631009"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}