Australia interest rate forecast 2026: where the cash rate is heading

Since publication: the Reserve Bank has raised the cash rate target by 25 basis points to 4.60 per cent, effective 30 September 2026. It is the fourth hike of 2026, after February, March and May, and follows holds at 4.35 per cent in June and August. The Board said inflation is still too high and that it will raise the cash rate further if needed. The market pricing and bank forecasts below date from late May 2026, when the central case was a long hold at 4.35 per cent; they are kept as the record of that view, not as a current forecast.

When this guide was published in late May 2026, the Reserve Bank had the cash rate at 4.35 per cent after three hikes in February, March and May, and the next decision was due on 15 and 16 June. The market had priced a 75 per cent probability of a hold, the bank-economist consensus had converged on the same view, and Governor Bullock used the phrase "scope to pause" three times in the May Statement on Monetary Policy. The summary at the time: the bar for a fourth hike was high, and the case for a cut did not exist yet.

This guide walks through what the market is pricing, what the major bank economists are forecasting, how the wholesale curve translates into fixed mortgage rates, and what borrowers should actually do with the information.

The current state, May 2026

• Cash rate: 4.35 per cent (set 6 May 2026, three-quarters of the eight-vote board majority for the hike).
• Trimmed mean inflation: 3.4 per cent year-ended March 2026 quarter, above the RBA 2 to 3 per cent target band.
• Unemployment: 4.25 per cent, materially below the RBA full-employment estimate of 4.5 to 4.75 per cent.
• Wage Price Index: 3.8 per cent annualised, slightly above the RBA forecast of 3.6 per cent.
• Statement on Monetary Policy tone: three uses of "scope to pause", with the press conference adding "risks sit towards another increase rather than a cut".

Since May, the RBA has held the cash rate at 4.35 per cent in June and August and raised it to 4.60 per cent, effective 30 September 2026. The other figures in this list are as at May 2026.

What the market is priced for

The cleanest forward-looking signal is the Overnight Index Swap (OIS) curve, which is what the wholesale market actually pays to receive or pay the cash rate over forward periods. As at the publication date in late May 2026, the OIS curve was consistent with the following implied probabilities for each upcoming meeting:

• 15-16 June 2026: 75 per cent hold, 25 per cent hike to 4.60 per cent. Outcome: hold at 4.35 per cent.
• 10-11 August 2026: 60 per cent hold, 30 per cent hike, 10 per cent on a residual second hike. Outcome: hold at 4.35 per cent.
• 28-29 September 2026: a near-zero probability of a cut. Outcome: hike to 4.60 per cent.
• 2-3 November 2026: first slim possibility of a cut, around 10 per cent priced.
• Q1 2027: first cut to 4.10 per cent priced as the central case.

At the time, the implied terminal rate (the highest level priced) topped out around 4.50 per cent on average across the curve, and most of the expected path was a long hold rather than further hikes. The cash rate has since gone above that level: it has been 4.60 per cent since 30 September 2026.

The major bank economist consensus

The four major bank economic teams (CBA, Westpac, ANZ, NAB) publish official cash-rate forecasts at each Statement on Monetary Policy update. As at late May 2026, the consensus across the four was broadly:

• Hold at 4.35 per cent through June and August.
• One further hike risk in Q3 2026 if August Wage Price Index or July monthly CPI prints surprise to the upside.
• First cut deferred to Q1 2027 in the central forecast, with end-2027 cash rate at 3.85 per cent across most house forecasts.
• Long-run neutral cash rate estimated at 3.25 to 3.75 per cent across the four houses (this is the rate the RBA thinks is neither stimulatory nor restrictive).

The read across these forecasts in late May was that the rate path was more about "how long do we sit at 4.35 per cent" than "how much higher", with a long flat plateau through the second half of 2026 as the base case at most major bank houses. The rise to 4.60 per cent, effective 30 September 2026, ended that plateau. These forecasts predate it and have not been updated here.

How this translates into variable mortgage rates

Variable mortgage rates have followed the 2026 hiking cycle through almost full pass-through. Big 4 owner-occupier variable rates sit at 5.99 to 6.20 per cent as at late May 2026 for prime borrowers, with sharper rates of 5.79 to 5.95 per cent from non-bank lenders and the digital majors.

When this guide was published, the expectation was that a June hold would leave variable rates roughly where they were, and that a fourth hike to 4.60 per cent would bring roughly full pass-through within two weeks, taking Big 4 variable rates to around 6.25 to 6.45 per cent from their late-May levels. The RBA held in June and August, and the fourth hike took effect on 30 September 2026. Each lender sets its own pass-through, so check the lender's rate card for the rate it now charges.

The other dimension to watch on variable rates is the gap between front-book (new borrower) and back-book (existing borrower) pricing. That gap has widened materially through the 2026 cycle as banks price aggressively for new refinance volume while leaving existing variable customers on higher rates. As at late May, the gap is wider than any time in the past four years, which is a structural opportunity for any borrower who has not had a rate review in 18+ months.

How this translates into fixed mortgage rates

Fixed mortgage rates are priced off the wholesale Bank-Bill Swap (BBSW) curve at the relevant tenor (1, 2, 3 or 5 years), plus a bank funding margin, plus a credit spread for the borrower profile. The wholesale curve prices in whatever RBA path the market expects at the time, which is why fixed rates can move materially even when the cash rate is unchanged.

Indicative Big 4 fixed rates for owner-occupier P&I as at late May 2026:

• 1-year fixed: 5.69 to 5.89 per cent.
• 2-year fixed: 5.79 to 5.99 per cent.
• 3-year fixed: 5.89 to 6.15 per cent.
• 5-year fixed: 6.05 to 6.35 per cent.

In late May, the shape of the curve (longer tenors broadly flat to variable) was consistent with the market view that the cash rate would not be cut materially within the fixed window. If the market view shifted to a steeper expected cut path, longer fixed rates would fall below current variable rates more clearly.

What borrowers should actually do

• Variable on the back book: if you have not had a rate review in 18 months, get one. The front-book-to-back-book gap is unusually wide. A 50 basis-point cut on a $700,000 loan is roughly $290 a month, and it requires no application form for an existing-lender retention discount.
• Considering fixing: fix for the certainty, not for the direction. If predictable repayments matter more than the optionality, fixing makes sense. If you are doing it as a bet that rates will keep rising, that bet is already priced in.
• Refinance candidate: the refinance opportunity (sharper front-book rates, the streamlined like-for-like APG 223 carve-out, possible APRA buffer review later in the year) is largely independent of further RBA moves.
• First home buyer: the rate path is a secondary concern compared to the First Home Guarantee (no annual cap as of October 2025), the Help to Buy scheme stack, and state-level concessions. Run your borrowing capacity at current rates, layer the schemes that fit, and act on the property rather than waiting for a rate cut.

What can change the forecast

As at late May 2026, three things looked most likely to move the market view before the end of 2026:

• The July monthly CPI indicator and August quarterly inflation prints. A material upside surprise would lift the September meeting hike probability materially.
• The August Wage Price Index. The RBA has been explicit that unit labour cost growth is the wage measure that matters; a Q2 print materially above the trajectory would shift the case.
• Global central-bank actions, particularly the Federal Reserve. The RBA is not on a Fed-following path, but persistent divergence shows up in the AUD exchange rate, which is a back-door channel into Australian inflation.

Frequently asked questions

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