RBA Rate Forecast 2026: Will Interest Rates Go Up or Down?
Jake Sgarbossa
Head of Commercial
Breaks down of the latest CPI data, key meeting dates, and what borrowers and savers can realistically expect from interest rates this year.
Breaks down of the latest CPI data, key meeting dates, and what borrowers and savers can realistically expect from interest rates this year.
Disclaimer: This article is an opinion piece only and is provided for general information purposes. It does not constitute personal financial advice, nor should it be relied upon as a prediction of future interest rate decisions. Monetary policy outcomes are uncertain and subject to change.
For many households, January has been a chance to reset budgets, review mortgages, and get financial affairs in order after the Christmas period. But while borrowers might be easing into the new year, the outlook for interest rates remains anything but settled. In fact, 2026 is shaping up to be a significant year for monetary policy, with the RBA’s first meeting next week and markets on edge about what could come next.
The mood around interest rates has shifted considerably in a short space of time. Most of 2025, the prevailing narrative was centred on rate cuts. The RBA had already delivered three reductions over the year, and many commentators expected that easing cycle to continue. That view did not last. By November, discussions had moved from further cuts to an extended pause, and then quickly to the prospect that rate hikes could be back on the table. RBA Governor Michele Bullock made the change in tone unmistakably clear in her final remarks for the year. She said she did not see rate cuts on the horizon for the foreseeable future, and indicated the board was weighing up either a prolonged hold or a potential increase. That statement prompted several high-profile economists to revisit and revise their forecasts heading into 2026.
Before the RBA meets in February, fresh inflation data has already landed and will influence expectations for policy. According to the latest Australian Bureau of Statistics (ABS) release, annual CPI inflation rose to 3.80% in the 12 months to December 2025, up from 3.40% in November. Trimmed mean inflation (the RBA’s preferred indicator of underlying price pressures) also increased to 3.30% over the year. Both measures remain outside the RBA’s 2–3% target band, indicating that price pressures are still persistent. The largest contributors to the annual rise were Housing (+5.50%), Food and non-alcoholic beverages (+3.40%) and Recreation and culture (+4.40%). The higher-than-anticipated inflation outcome has reinforced expectations that the RBA may adopt a more hawkish stance at its February meeting.
The RBA board does not meet in January. Under its current schedule, the RBA now meets eight times a year rather than every month. This is the third year of that reduced meeting timetable. The first monetary policy meeting of 2026 will take place over two days, starting on Monday, 2nd February and concluding on Tuesday, 3rd February. The interest rate decision will be announced at 2.30pm AEDT. The official cash rate currently sits at 3.60%, where it has remained since the RBA’s last rate cut in August 2025.
Predicting central bank decisions with confidence is always difficult, especially while inflation remains above target and the RBA continues to emphasise a meeting-by-meeting approach. However, the latest CPI data for December 2025, released on 28 January, showed inflation running stronger than market forecasts with headline inflation at 3.8% and underlying measures also elevated, prompting many major banks and markets to shift expectations toward a potential rate rise at the RBA’s first policy meeting in February.
While a rate hike is increasingly priced in with several forecasts pointing to a 25basis point increase to 3.85% at the 3 February 2026 meeting uncertainty remains and the RBA could still opt to hold if it judges that recent data does not yet reflect a persistent inflation trend.
At the heart of all of this is inflation. Maintaining price stability, defined as inflation between 2 and 3 per cent, is a core part of the RBA’s mandate alongside achieving full employment. The RBA relies heavily on data released by the ABS to track its progress. During 2022 and 2023, when inflation surged, RBA Governor Michelle Bullock frequently warned that high inflation hurts everyone as the RBA lifted rates to bring price growth back under control.
InDecember, after what many described as a hawkish hold, she said the board would be closely monitoring incoming inflation data to determine whether price pressures were proving persistent or temporary.
If inflation remains stubbornly high and fails to move back towards the target band (which it appears to be the case with the latest data), she suggested the board may need to reassess whether financial conditions are tight enough, including the possibility of raising rates. Bullock did not provide a timeline for when the RBA might make that call, emphasising that decisions would be made on a meeting-by-meeting basis.
In simple terms, interest rates are unlikely to fall in the near term, and the risk of further increases has grown following the latest inflation data.
Inflation remains above the RBA’s target band and recent readings came in stronger than expected, suggesting price pressures are proving more persistent. As a result, the Bank is not in a position to cut rates anytime soon and may need to consider additional tightening if inflation does not moderate more convincingly.
For borrowers, this means repayments are likely to remain elevated and could edge higher if the RBA delivers an increase next week. For savers, higher returns on cash and term deposits are likely to persist while rates stay restrictive.
Overall, 2026 is shaping up to be a year of caution and discipline from the RBA. Policy is expected to remain tight, with the balance of risks now tilted more toward further rate hikes than cuts.
For those following the policy calendar, the RBA’s scheduled interest rate decisions for 2026 are as follows.
Each decision will be released at 2.30pm Sydney time.