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Market Update

Interest Rate Predictions for 2026: What Experts Say

October 15, 2025 • 7 min read

After the most aggressive rate hiking cycle in Australian history (13 increases from May 2022 to November 2023), the big question on everyone's mind is: what happens in 2026? We've analyzed predictions from the Big 4 banks, independent economists, and the futures market to give you the clearest picture possible.

⚠️ Disclaimer

Interest rate predictions are notoriously difficult. Even the RBA gets it wrong. Use these insights to understand the trends and factors, but don't base major financial decisions on predictions alone. Always prepare for rates to go higher than expected.

Current State: October 2025

RBA Cash Rate

4.35%

Average Variable Rate

6.25%

Inflation (Annual)

3.2%

The Consensus: Cuts Coming, But When?

Almost all major forecasters agree that the RBA will cut rates in 2026. The debate is about timing and magnitude.

Big 4 Bank Predictions

Commonwealth Bank (CBA)

Most Optimistic

First cut: February 2026 | Total cuts: 3 cuts (0.75%) | End-2026 rate: 3.60%

Reasoning: Inflation returning to target faster than expected, weak consumer spending

Westpac

First cut: May 2026 | Total cuts: 2 cuts (0.50%) | End-2026 rate: 3.85%

Reasoning: RBA will wait for more confirmation inflation is sustainably in target band

NAB

First cut: March 2026 | Total cuts: 3 cuts (0.75%) | End-2026 rate: 3.60%

Reasoning: Labor market softening, GDP growth below trend

ANZ

Most Conservative

First cut: August 2026 | Total cuts: 2 cuts (0.50%) | End-2026 rate: 3.85%

Reasoning: Sticky inflation, tight labor market, RBA bias to move slowly

Independent Economists

  • AMP Capital: First cut April 2026, 4 total cuts, ending at 3.35%
  • BetaShares: First cut June 2026, 2 total cuts, ending at 3.85%
  • Independent Economics: First cut February 2026, 5 total cuts, ending at 3.10%

Key Factors That Will Determine the Path

1. Inflation Trajectory

Current: 3.2% (annual), target is 2-3%

If inflation falls sustainably to 2.5% or below by Q1 2026, expect earlier and larger cuts. If it remains stubborn above 3%, cuts delayed to late 2026.

2. Labor Market Strength

Current unemployment: 4.1%, expected to rise to 4.5%

Wage growth is easing from 4.1% to ~3.5%. If unemployment rises faster than expected or wage growth falls below 3%, the RBA will cut sooner.

3. Global Economic Conditions

The RBA watches the US Federal Reserve and other central banks. If global rate cuts accelerate (as expected in early 2026), this gives the RBA more room to cut without weakening the AUD too much.

4. Consumer Spending & Housing Market

Retail sales are weak, households are stretched. If consumer spending deteriorates further or the housing market cools significantly, the RBA may cut more aggressively to support the economy.

What This Means for Your Home Loan

Scenario Planning

Best Case: Early & Deep Cuts

First cut Feb 2026, 4-5 cuts total (1.00%+)

Your rate: $500k loan @ 6.25% → 5.25% = Save $289/month

Base Case: Moderate Cuts

First cut May 2026, 2-3 cuts total (0.50-0.75%)

Your rate: $500k loan @ 6.25% → 5.75% = Save $145/month

Worst Case: Delayed or No Cuts

No cuts until late 2026, or inflation resurges requiring 1 more hike

Your rate: $500k loan stays at 6.25% or rises to 6.50%

Should You Fix or Stay Variable?

This is the million-dollar question. Here's how to think about it:

Current Rates (October 2025)

Variable rates: 5.79% - 6.50%

1-year fixed: 5.69% - 6.20%

2-year fixed: 5.49% - 5.99%

3-year fixed: 5.59% - 6.09%

The Math:

If you fix at 5.99% for 2 years and the RBA cuts by 0.75% in 2026, variable rates would drop to ~5.50%. You'd be paying 0.49% MORE on your fixed rate.

On a $500k loan, that's about $200/month or $2,400/year in "lost savings."

Our Take: Unless you need certainty for budgeting, staying variable looks like the better bet for 2026 given the expected rate cuts.

Action Items for Borrowers

  1. Review your current rate: If you're on 6.5%+, refinance NOW. Don't wait for cuts - get on a better rate immediately.
  2. Build your offset balance: Every dollar in your offset saves you 6%+ interest. Better than any savings account.
  3. Make extra repayments now: Pay down principal while rates are high. Future cuts will feel even better on a smaller loan.
  4. Lock in serviceability: If you want to upgrade or invest, get pre-approved now while you can still service at current high rates.
  5. Don't time the market: Trying to perfectly time a refinance for right before cuts is impossible. Focus on getting a good rate with good features now.

The Bottom Line

The consensus is clear: rate cuts are coming in 2026. The question is whether they start in Q1 (February-March) or Q2-Q3 (May-August), and whether we get 2-3 cuts or 4-5 cuts.

Either way, this is good news for borrowers. But don't wait for cuts to take action:

  • If you're paying above 6.2%, refinance NOW
  • If you're on variable, stay variable (don't fix expecting higher cuts)
  • Use any spare cash to pay down debt or build offset balances
  • When cuts do come, don't spend the savings - use them to pay down debt faster

Remember: the best time to get a better rate is always now. Every month you delay is money lost.

Find Your Best Rate Today

Don't wait for rate cuts. Compare 20+ lenders and refinance to a better rate now. Every month counts.

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