Interest Rate Predictions for 2026: What the Big 4 Banks Are Now Saying

As we approach 2026, Australian property investors and homeowners are facing a dramatically different interest rate landscape than many expected just months ago. The Reserve Bank of Australia held the cash rate steady at 3.60% in December 2025, but the real story isn't what happened—it's what Australia's Big 4 banks are now predicting for the year ahead.

The Big 4 Banks Are Now Split on Interest Rate Predictions

For the first time in recent memory, Australia's major banks have diverged significantly in their 2026 interest rate forecasts, creating uncertainty for borrowers and investors alike.

Commonwealth Bank has made a bombshell prediction, forecasting a 25 basis point hike in February 2026. This would push the cash rate to 3.85%. CBA economists argue this single hike will be necessary to ensure inflation returns to the RBA's target midpoint by the end of 2027.

National Australia Bank has taken an even more hawkish stance, predicting two consecutive interest rate increases—one in February 2026 and another in May 2026. This would take the cash rate to 4.10%, representing a significant reversal from the three cuts Australians enjoyed in 2025.

Westpac, in contrast, maintains a more optimistic outlook. The bank still forecasts two 25 basis point cuts in May and August 2026, which would bring the cash rate down to 3.10%. Westpac economists believe inflation will moderate sufficiently to allow these reductions.

ANZ has adopted a middle-ground position, expecting no changes to interest rates throughout the first half of 2026. The bank anticipates the RBA will maintain the cash rate at 3.60% for an extended period as it monitors economic conditions.

"The property market is at a critical juncture," says Paul Virdi, Director of Alpha Real Property Group. "These diverging interest rate predictions from the Big 4 banks reflect genuine uncertainty about Australia's economic trajectory. For investors and homeowners, this means planning for multiple scenarios and ensuring your financial position can withstand potential rate increases in 2026."

Why Inflation Data Changed Everything

The dramatic shift in bank forecasts stems from stubborn inflation figures that exceeded expectations. According to the Australian Bureau of Statistics, headline inflation jumped to 3.8% in October 2025, up from 3.6% in September. More concerning for the RBA, the trimmed mean inflation measure rose to 3.3% in October from 3.2% the previous month.

These figures sit stubbornly above the RBA's target band of 2-3%. The October reading was the highest since April 2025.

Housing costs were the largest contributor to October's inflation spike, rising 5.9% annually. Electricity prices surged 37.1% compared to the previous year, driven by the expiry of government rebates. Food and non-alcoholic beverages increased 3.2%, with beef and lamb prices rising over 10% due to strong overseas demand.

What These Interest Rate Predictions Mean for Your Mortgage

• For borrowers with variable-rate mortgages, the financial implications are significant. Based on a typical $600,000 home loan with 25 years remaining, if CBA's single hike eventuates, monthly repayments would increase by approximately $90. If NAB's two hikes materialise, monthly repayments could rise by roughly $180 by mid-2026. If Westpac's cuts come through, monthly repayments could decrease by approximately $150-200.

• The uncertainty has already prompted several Big 4 banks to adjust their fixed-rate offerings. NAB increased fixed home loan rates by up to 0.20 percentage points in mid-December 2025, with its lowest fixed rate now sitting at 5.39%. ANZ currently offers the lowest two-year fixed rate among the Big 4 at 5.19%.

RBA Governor's Hawkish Warning

RBA Governor Michele Bullock struck a notably hawkish tone at the December 2025 board meeting, warning that interest rate cuts are not on the horizon for the foreseeable future. Governor Bullock stated that the board would be examining two possibilities for 2026: an extended hold or the possibility of a rate rise.

The Governor emphasised that the RBA did not explicitly consider a rate hike at the December meeting but spent considerable time discussing the circumstances that might necessitate rate increases in 2026.

Economic Indicators Supporting Rate Hike Scenarios

Several economic metrics support the more hawkish interest rate predictions from CBA and NAB.

• Australia's unemployment rate stood at 4.3% in November 2025, indicating a labour market that remains tight. This level of employment puts upward pressure on wages, which can fuel inflation.

• October 2025 household spending jumped 1.3% month-on-month and 5.6% year-on-year—the fastest annual pace in over a year. This robust consumer activity suggests the Australian economy has more momentum than previously anticipated.

• Australia's economy expanded 0.4% in the third quarter of 2025, following 0.7% growth in the previous quarter. Annual GDP growth remains around 2%, indicating stable economic conditions.

National dwelling values rose 2.8% in the three months to October 2025, marking the largest quarterly increase since July 2023. Annual property price growth accelerated to 6.1%, signalling renewed market momentum.

What Property Investors Should Do Now

• Given the divergent interest rate predictions for 2026, property investors should stress-test portfolios assuming rates rise by 50 basis points to ensure investments remain cashflow positive. Building cash reserves equivalent to 6-12 months of mortgage payments provides crucial buffers.

• Refinancing opportunities deserve evaluation. Despite uncertainty, current rates remain below the 4.35% peak. Borrowers on higher rates might benefit from refinancing, potentially locking in fixed rates if rate hike scenarios seem probable.

• Property selection criteria should emphasise resilience. In higher-rate environments, properties with strong rental yields, proximity to employment centres, and lower holding costs perform best.

The February 2026 RBA Meeting

• The RBA's first interest rate decision for 2026 is scheduled for Tuesday, 3 February at 2:30 pm AEDT. This meeting has taken on heightened significance given that two of the Big 4 banks predict rate hikes will commence at this meeting.

• The December 2025 inflation data, released in late January, will provide crucial insight into whether October's inflation spike represented an anomaly or the beginning of a trend.

Long-Term Interest Rate Outlook

Regardless of near-term fluctuations, most forecasters expect Australia's cash rate to stabilise in the 3.0-3.5% range over the medium term—still well below the 4.35% peak reached during the 2022-2024 tightening cycle.

For property investors accustomed to the ultra-low rates of the early 2020s, this represents a permanent reset in borrowing costs that necessitates more conservative investment strategies.

The divergence in Big 4 bank interest rate predictions for 2026 reflects genuine economic uncertainty. While homeowners and investors naturally hope for rate cuts, the inflation data and economic indicators suggest that at minimum, interest rates will remain elevated through the first half of 2026.

For personalised advice on navigating Australia's changing interest rate environment, connect with the team at Alpha Real Property Group through our LinkedIn page or follow us on Instagram and Facebook for regular property market updates.

Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Readers should conduct their own research and consult with qualified professionals before making property investment decisions.