- Westpac has joined its 'big four' peers in ruling out any more interest rate cuts in the current downcycle
- Australia's second-largest home lender had been previously forecasting two more cuts to the official cash rate in 2026
- Two of the big banks now believe the Reserve Bank will increase the cash rate in February in response to persistent inflation
Westpac was the last of the big four banks sticking with its prediction of further cuts to the cash rate in 2026, pencilling them in for May and August.
But on Wednesday, Westpac economists fell into line with their big bank counterparts in ruling out more cuts while adopting the more dovish stance of the cash rate remaining on hold at 3.60% for the whole of 2026.
The more measured outlook comes a day after CommBank and NAB updated their forecasts, both predicting the Reserve Bank of Australia will raise the cash rate by 0.25% to 3.85% at its next monetary policy board meeting in February.
NAB economists took it a step further, forecasting another 0.25% hike in May, taking the official cash rate to 4.1%.
Earlier this month, ANZ economists revised their forecast to rule out any more interest rate cuts in the current downcycle.
Why have the big banks gone cold on further cash rate cuts?
That question can be answered in one word: inflation.
Up until a seemingly banal monthly inflation reading in September, it seemed Australia had tamed its post-pandemic inflation problem that had seen prices skyrocket and interest rates remain high.
On the back of that data, the RBA made its first cut to the official cash rate in more than four years in February, followed by two more cuts in May and August.
It was happy days for mortgage holders with the cuts effectively putting more money in their pockets to the tune of around $100 a month with each rate cut for the average borrower.
But, of course, extra cash can lead to extra spending.
By many measures, household spending was on the up throughout 2025 with the latest official ABS data showing a 5.6% growth in spending in the 12 months to October.
Economy plays its part
The Australian economy has also shown stronger growth in 2025, with the official measure of GDP climbing 2.1% year on year.
This was largely driven by an increase in none other than household spending, as well as a jump in private sector investment and service industries.
However, much of the inflation conundrum persists in services - areas less-affected by the cash rate - such as energy and rent.
The Australian economy is expected to show further growth to end the year but CommBank economists warn it has already hit its "speed limit".
By that, they mean inflation is back on the agenda and expected to "show signs of persistence".
This suggests Australia is running at capacity with poor productivity growth hampering the nation's ability to grow the pie, with low unemployment led by non-market sectors fuelling the ability to eat the pie.
The last two inflation prints shocked markets with higher-than-expected readings, with the last official annualised rate at 3.8% for headline inflation and 3.3% for underlying inflation - both well above the RBA's target band.
RBA vs inflation
The RBA has been nothing but consistent with its message that bringing inflation to within target is its number one priority.
To do this, it has only one tool at its disposal and that is to adjust the cash rate.
Some economists say the third cash rate cut in August was not needed and may have been responsible for reigniting inflationary pressures.
But to deliver what is termed an economic 'soft-landing' - bringing down high inflation without causing a recession or widespread unemployment - can be a difficult task for central banks.
Both CommBank and NAB believe a February cash rate cut will help ensure inflation is returned to the target band.
CommBank is backing one more hike to 3.85% where the cash rate will sit until the end of 2026.
NAB sees it hitting 4.1% with another 0.25% hike in May.
What does this mean for mortgage holders?
For people with home loans, it means their repayments may go up faster than they - or markets - initially anticipated.
Already a slew of home lenders have raised their fixed interest rates, laying the ground for upcoming rate hikes.
See also: Should you fix your home loan interest rate?
Since early November, major home lenders have raised their fixed home loan rates - Westpac twice - and many smaller lenders are following.
As it stands, there are still some rates under 5% on the market but they may not be around for an extended period.
The next RBA monetary policy meeting will be on 2-3 February.
It will come the week after key December quarter inflation data which some analysts are predicting will see the RBA's preferred measure of underlying inflation remain at 3.3%.
But if inflation again surprises to the upside, the RBA may well pull its only lever.
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Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 5.95% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
