2026 interest rate forecast: What Australian borrowers need to know

Interest rates in Australia came off the boil in 2025, with the Reserve Bank of Australia (RBA) cutting the cash rate three times, in February, May, and August. According to Roy Morgan research, while the risk of mortgage stress has eased alongside interest rates, more than a quarter of home loan holders remain at risk as of November.

Is there hope of more rate cuts on the horizon? Well, that depends on who you ask. Nearly all experts are forecasting 2026 will see interest rates largely plateau - at least to begin with.

So, with that, let's explore how interest rates are set in Australia, what influences them, and when borrowers might see relief.

Who will determine interest rates in 2026?

Interest rates in Australia are largely determined by lenders and majorly influenced by the Reserve Bank of Australia (RBA). The RBA sets the cash rate and uses it to stimulate or restrict demand for goods and services in the economy.

Let's get a bit more technical for a second.

What is inflation?

The level of demand in the economy largely predicts inflation - that is, the changing value of a dollar. When inflation is high, the value of each dollar drops (ergo, you can buy less with your dollar than you used to be able to). But we do need some inflation to spur economic growth.

The RBA believes the sweet spot for underlying inflation is between 2% and 3% on an annual basis - meaning it aims to keep prices rising by between 2% and 3% each year. Inflation dipped back into that band for the first time since in over three years in March 2025, but any celebrations were short lived.

Underlying annual inflation dipped to 2.9% in March, bounced to 3.1% in April, dropped back to 2.8% in June, and had lifted back up to 3.3% by October - the most recent read at the time of writing. Such volatility likely has the RBA wary of unexpected spikes in the near future.

How does the cash rate influence inflation?

The RBA hiked the cash rate 13 times between mid-2022 and late-2023 to a high of 4.35%, before easing it to 3.60% over the course of 2025. The relationship between the cash rate and home loan interest rates is clear in the below chart:

When the RBA raises the cash rate, it increases the cost of doing business for banks. Those banks generally pass the cost onto consumers by increasing the interest rates they charge on mortgages and other loans.

The RBA expects consumers to then tighten their belts due to the rising cost of servicing their debts and, as consumer spending slows, demand for goods and services - and therefore inflation - should too.

Conversely, a lower cash rate means cheaper access to cash for banks, many of which pass those savings onto consumers, loosening the purse strings of Aussies and potentially driving spending upwards.

Now you're across the basics of why rates have been high post-pandemic and what led them to be lowered in 2025, let's look at what experts are forecasting the RBA to do in 2026.

Expert predictions: Where will interest rates go in 2026?

The vast majority of experts believe the cash rate will remain at 3.60%, at least during the first half of 2026. Here are the forecasts offered by economists at the big four banks at the time of writing:

• CommBank is forecasting an extended cash rate hold

"We still expect the cash rate to remain on hold from here but note risks clearly sit to higher rates in 2026." CommBank head of Australian economics Belinda Allen

• NAB is forecasting an extended cash rate hold

"For now, we see the RBA on hold next year, but risks to the outlook are clearly asymmetric. February is now a live meeting should forthcoming inflation data on 7 and 28 January validate the RBA's fears."NAB chief economist Sally Auld

• Westpac is forecasting two rate cuts in mid-2026

"We expect core inflation to ease back toward, and eventually below, the mid-point of the target band by the end of 2026 … As such, our current baseline is for two more 25 basis point rate cuts but not until mid-2026."Westpac senior economist Justin Smirk and head of business and industry economics Sian Fenner

• ANZ is forecasting an extended cash rate hold

"We expect the cash rate to remain at 3.60% for an extended period. That said … the risks of a rate hike in the first half of 2026 are rising."ANZ head of Australian economics Adam Boyton

Key drivers of interest rates in 2026

The RBA board considers a multitude of factors when it makes its cash rate decisions, and lenders don't have to change home loan rates based on cash rate changes. Thus, the factors influencing home loan interest rates in 2026 are likely to be two-fold: Those that impact the RBA board and its outlook and those that impact lenders.

What data will the RBA be watching in 2026?

The RBA will be paying close attention to both inflation and unemployment. These two data points typically move in opposing directions. Meaning, when one falls, the other tends to rise. However, the RBA has a dual mandate to protect both jobs and purchasing power, a 'narrow path' as the balance is often referred to. Here's how the RBA believes inflation and unemployment figures will track over the next two years, as per its November Statement on Monetary Policy.

How the home loan market will impact interest rates in the new year

The other factor that will influence home loan interest rates in 2026 is the banking and lending market. Lenders make their own choices when it comes to setting interest rates, with each offering different rates on different products. One lender might choose to keep interest rates low in an effort to attract borrowers while another may bump rates up to improve its profit margins.

Different changes might also be realised over different types of home loan interest rates. For instance, the second half of 2025 saw a spate of fixed rate cuts. Many of those appear to be a reaction to speculation regarding the cash rate - an example of how nuanced the market can be. When the cash rate is cut, chances are variable home loan rates will be too, but there might be other surprises waiting for us in the wings.

How interest rate changes could impact Australian home loans

Perhaps the most malleable factor influencing the repayments on a home loan is its interest rate. Interest rates can change regularly and borrowers seeking a lower rate can often refinance to realise one. For that reason, it's important to be aware of your home loan interest rate and stay informed of the market to ensure you're getting a good deal.

If you held a $500,000, 30-year home loan, here's how your mortgage repayments might change considering various interest rates:

Interest Rate	6%	5.75%	5.5%	5.25%	5%
Monthly Repayments	$2,998	$2,918	$2,839	$2,761	$2,684

Wondering how a rate cut could impact your home loan repayments? Your Mortgage's mortgage repayment calculator can help!

In the market for a competitive home loan? Here are some of the lowest rate mortgage products available right now:

Important Information and Comparison Rate Warning

How can borrowers prepare for interest rate changes?

While no one knows exactly when interest rate cuts will come, borrowers who prepare for changes in the rate environment will be ready to make the most of cuts when they arrive. Here's where you might want to start:

Get across your home loan options

• Compare lenders
  Regularly review home loan rates across different lenders to ensure you're getting a competitive deal.

• Consider refinancing
  If your current home loan interest rate is higher than others available, it could be worth refinancing. Locking in a lower, fixed home loan rate may also offer stability if rate cuts take longer than expected.

• Check for fees
  Be aware of any refinancing or break fees that could offset savings from a lower rate, and make sure to always check a mortgage's comparison rate.

Consider your needs

• What do you want and need out of a home loan?
  Once you're across the market, now's the time to consider whether you could be better off with access to features your current lender doesn't offer you, such as an offset account.

• Contemplate whether you would like a fixed or variable rate
  A variable rate could see you benefiting from future rate cuts but a fixed rate offers more certainty. If you're unsure about which option is right for you, you might consider splitting your rate to get the best of both worlds.

Stay Informed

• Follow market updates
  Keep an eye on announcements from the RBA, economic forecasts, and YourMortgage.com.au to stay on top of all that's going on the market.

• Consult with experts
  If you're unsure or unconfident, consider speaking with a mortgage broker or financial adviser.

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