Homeowners in Australia are being warned to prepare for a fresh wave of financial pressure, with the nation's largest bank predicting interest rate hikes will return in 2026. This follows a brief period of relief in 2025 when the Reserve Bank of Australia (RBA) cut the cash rate three times, bringing it to 3.6 per cent.
Banks Forecast Imminent Rate Rises
A new report from the Commonwealth Bank of Australia (CommBank) has sounded the alarm, suggesting a 25 basis point increase could be imminent as early as February in an effort to combat stubborn inflation. Such a move would add approximately $154 to the monthly repayment on a $1 million mortgage.
The bank's Economic Insights report for December does not anticipate a major 'hiking cycle' but projects the cash rate will climb to 3.85 per cent by the end of 2026. "Notably, there is a broad-based acceleration in inflation occurring against a backdrop of a still tight labour market," the report states, indicating that underlying price pressures have strengthened.
Economists Agree: Cuts Are Off the Table
The warning is echoed across the banking sector. The National Australia Bank (NAB) has forecast two rate rises before June 2026, predicting increases of 0.25 per cent in both February and May. Greg Jericho, Chief Economist at the Australia Institute, told News Corp he expects at least one rate rise by mid-year, driven potentially by imported inflation from overseas.
"I don't think it's something that people need to be as concerned about as we saw during 2022 and 2023," Jericho said, referencing the period of aggressive monetary tightening. However, he was clear that any hopes for a rate cut in 2026 are misplaced, stating there was no 'real chance' of a reduction.
This view is shared by other senior economists. Adelaide Timbrell of ANZ and Anne Flaherty of REA Group both concur that returning inflation to the RBA's target band of 2-3 per cent will be a slow process. Westpac and ANZ now expect rates to hold steady, abandoning earlier predictions of cuts.
Property Market and the RBA's Next Move
The property market presents a mixed picture. National home prices reached a new record high in December, with the median value hitting $880,000 after rising 8.8 per cent over the year. However, growth has nearly stalled, with values increasing just 0.1 per cent in December.
Some analysts, like economist Leith van Onselen, believe a cooling housing market might give the RBA some breathing room. All eyes are now on the central bank's upcoming decisions. The RBA is set to release its monthly consumer price index data, with its first monetary policy meeting of the year scheduled for December 3. The interest rate decision will be announced at 2.30pm.
The consensus is clear: Australian mortgage holders should use the current period of stability to prepare their budgets, as the era of rising rates is poised for an unwelcome return.
