All four major banks predict the RBA will keep interest rates on hold at its December meeting, with Commonwealth Bank, NAB and ANZ ruling out further cuts in this cycle. Westpac remains the only major bank forecasting additional rate relief in 2026.
Recent inflation data has complicated the outlook, with the Consumer Price Index rising to 3.8 per cent in October, up from 3.6 per cent in September.Â
Trimmed mean inflation also increased to 3.3 per cent from 3.2 per cent.
Commonwealth Bank head of Australian economics Belinda Allen expects the RBA’s tone in December will take a “further step in the hawkish direction” as it responds to changing economic conditions.
“We do not think a rate hike will be explicitly considered in December, but neither would a rate cut. But there will have to be an acknowledgement of the shifts to the balance of risks for both the economy and inflation,” Ms Allen said.
NAB chief economist Sally Auld warned Australians should “prepare for a shift towards a more hawkish RBA,” reflecting accelerating inflation pressures and the economy returning to its trend growth rate.
Money markets are currently pricing a 60 per cent chance of a rate hike by June 2026, with some possibility of another increase by December, signalling growing concerns about persistent inflation.
The major banks have divergent forecasts for 2026.
Commonwealth Bank expects rates to remain on hold at 3.6 per cent throughout the year, while Westpac anticipates two cuts to 3.1 per cent in May and August.Â
Both NAB and ANZ predict rates will stay at 3.6 per cent, with ANZ specifically forecasting no changes for an “extended period.”
Westpac chief economist Luci Ellis believes there is still room for rate cuts next year as inflation moderates.
“The risk to our base case is quite obviously that the RBA stays on hold for longer. If we are right about supply capacity, though, the Australian economy will not hit the wall of capacity constraints. And that means the RBA risks keeping interest rates too high for too long,” she said.
Expert opinion remains divided on the future direction of interest rates.
A Finder survey revealed that half of the experts believe Australia has already reached the bottom of the easing cycle, while the other half see room for further cuts.
AMP chief economist Shane Oliver considers market expectations for rate hikes as “too bearish,” suggesting that “the move back to rate hikes is more likely a 2027 story.”
“The money market struggles with the concept that rates may spend some time on hold – but they went nearly three years on hold in 2016-19,” Mr Oliver said.
The RBA will announce its decision on December 9, with its next meeting scheduled for February 2026.
