Major RBA ‘shift’ flagged as Big Four banks reveal latest interest rate predictions
The Big Four banks expect the RBA to hold the cash rate at its December meeting, with three banks saying we’ve reached the bottom of the cycle. (Source: AAP/Yahoo Finance)
All of Australia’s Big Four banks expect 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 is the only bank holding out hope for further rate relief, with May and August cuts pencilled in.
Commonwealth Bank head of Australian economics Belinda Allen expects the RBA will unanimously remain on hold through 2026, but predicts the tone in the December meeting will take a “further step in the hawkish direction”.
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“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,” she said.
Allen noted that if trimmed mean inflation was higher than expected in the next quarter, the RBA would “take a further leap in February to pivot to rate hike discussions”.
NAB chief economist Sally Auld said Aussies should “prepare for a shift towards a more hawkish RBA”, reflecting a shift in risks with inflation pressures accelerating and the economy back to its trend growth rate.
“We continue to forecast the RBA on hold in 1H26 for now, but this forecast will be under review should evidence of a tighter labour market, more persistent price pressures or a further acceleration in domestic economic activity be realised in coming months,” she said.
Westpac chief economist Luci Ellis expects the RBA will remain on hold this month and for much of next year.
The bank expects inflation will moderate, at least in the market sector, over the course of 2026, which would leave room for the two cuts it has pencilled in.
“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.
ANZ this week updated its RBA forecast and now expects no further cuts from the RBA in the first half of 2026, with the cash rate to remain on hold “for an extended period”.
Here’s what the major bank’s economic teams are forecasting:
CBA: On hold at 3.6 per cent through 2026
Westpac: Two more cuts to 3.1 per cent likely May and August
NAB: On hold at 3.6 per cent for the first half of 2026
ANZ: On hold at 3.6 per cent for an “extended period”
The outlook for interest rates next year is a mixed bag amongst experts.
Many pointed to the latest Consumer Price Index data. Inflation rose to 3.8 per cent in October, up from 3.6 per cent in September. Trimmed mean inflation was 3.3 per cent in October, up from 3.2 per cent.
More than a third of experts (38 per cent) thought the inflation data had “definitely” raised the likelihood of a rate hike within the next six months, while 34 per cent saw it having little impact.
A further 28 per cent thought it increased the chances of a hike by as much as 50 per cent.
Money markets are seeing a 60 per cent chance of a hike by June 2026, with some chance of another hike by December.
Macquarie University Business School’s Geoffrey Kingston is one expert who thinks we will probably see “one or two rises in the cash rate” as we move through 2026.
“During the last few months there has been a distinct whiff of stagflation. This month saw a soft GDP print, and the last two months of inflation data were ominous,” he said.
“Behind all this are governments that are reluctant to rein in either spending, or the business taxes and regulations that stunt our tax base.”
However, Bendigo Bank economist David Robertson thinks the recent inflation data may well be a “temporary uplift and some emerging weakness in labour markets should still see one more cut in the cycle in mid–2026 to a more neutral cash rate”.
Market Economics managing director Stephen Koukoulas said the inflation lift we were seeing now was “likely to be a blip that will unwind in the first half of 2026”.
AMP chief economist Shane Oliver expects the RBA will remain on hold next year, scrapping its previous forecast for one last cut next year.
Oliver said market expectations for rate hikes were “too bearish” as he sees inflation falling back and unemployment rising more than the RBA thinks.
“The move back to rate hikes is more likely a 2027 story. Note that money market expectations for the RBA cash rate are often quite volatile and very responsive to the most recent economic data,” Oliver said.
“Just four months ago the money market was allowing for 2 or 3 more rate cuts by mid next year and it’s now swung to rate hikes next year. 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.”
The RBA will announce its decision at 2:30pm on Tuesday, December 9. The next time it will meet will be February 2 and 3 next year.
