Major lenders have been adjusting their forecasts after shock inflation figures released yesterday.
Homeowners hoping the Reserve Bank would continue to deliver one rate cut after another have been dealt a brutal wake-up call, with experts warning a 2026 rate hike is no longer a remote possibility.
Newly published inflation figures appear to have squashed earlier optimism of a Melbourne Cup Day rate cut next week and economists are reporting the prospect of cheaper mortgages is looking weaker.
Figures from the Australian Bureau of Statistics released Wednesday showed annual inflation was above expectations at 3 per cent – largely due to soaring electricity prices reigniting cost pressures in the economy.
Commonwealth Bank has now revealed it expects no more rate cuts in the foreseeable future. Westpac’s forecasts are under review.
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Bendigo Bank chief economist David Robertson said the chances of a 2025 rate cut were gone.
NAB had already pushed back its forecast timing for the next rate cut to May, while ANZ is forecasting the next cut to come in February – for now.
Graham Cooke, the insights manager at Finder.com.au, which runs a monthly poll of 40 economists, said there had previously been a lot of optimism of one last 2025 rate cut but this appears to have vanished.
Mr Cooke said the inflation change, plus a range of global uncertainties ranging from tensions between the US and Russia and global tariff policies, made the prospect of more rate cuts less certain.
“It’s changed this month. The economists we are polling are not so sure any more about further rate cuts,” Mr Cooke said.
Canstar data insights director Sally Tindall said higher inflation ruled out any chance of another cash rate cut in 2025 – and possibly in the “current cycle”.
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CBA and Westpac have retreated from earlier forecasts of coming rate cuts, while NAB and ANZ now expect cuts to occur in early to mid 2026.
Property economist Andrew Wilson said the cash rate policy outlook was “murky” as the end of government energy subsidies and unpredictable global oil prices muddied the path ahead.
He warned that the risk of the RBA reversing one of this year’s earlier cuts “cannot be ruled out” if inflation stays sticky.
“There’s no clear environment for business or inflation right now. It’s all in flux,” Mr Wilson said.
“Maybe the RBA was one rate cut ahead of the cycle this year. If inflation doesn’t settle, they may have to give one back.”
VanEck’s head of investments and capital markets Russel Chesler said the latest data had changed the conversation about rate cuts.
“Before the inflation announcement this morning, markets were pricing in a 40 per cent chance of a rate cut in November and a 100 per cent chance of a rate cut in February. Now, the expectation is that there will not be another rate cut until May next year,” Mr Chesler said.
Canstar insights director Sally Tindall said the inflation data has changed the outlook for rates. Picture: Tim Hunter.
“We think that may be optimistic. There is a real possibility that we are done with rate cuts in this cycle and the next move could be a rate increase if inflation doesn’t change course.”
Mr Chesler pointed out that electricity costs soared 9 per cent over the quarter and 23.6 per cent over the year largely due to the end of deferred rebates from government and annual price reviews.
While government energy subsidies were expected to provide temporary relief in the December quarter, Mr Chesler warned they were a band-aid solution that wouldn’t address the deeper problem.
He said the rising cost of global oil was a major risk for Australia as the country imported around 90 per cent of its requirements.
Higher oil prices would keep both petrol and power bills high – and, in turn, inflation – putting pressure on the Reserve Bank of Australia to act, Mr Chesler explained.
It’s worth noting that previous interest rate cutting cycles have varied greatly in lengh.
Eleven years passed between rate hikes over the period 2011 to 2022, with rates dropping to a record low, but the previous rate cut cycle in 2009 only lasted about a year. Most other rate cutting cycles over the past 30 years have lasted about two to five years.
Bendigo Bank chief economist David Robertson said the hotter-than-expected inflation figures had killed off hopes of a Cup Day cut.
“A Cup Day cut is now at best around a one in 12 chance, having been an odds-on favourite a few days ago,” he said.
Mr Robertson said the RBA’s official cash rate — currently 3.6 per cent — would now likely stay put for an extended period.
My Housing Market economist Andrew Wilson said the RBA could “take back” one of this year’s cut under certain conditions.
The unexpected jump in core inflation to 3 per cent would make it difficult for the RBA to cut rates any further this year, despite the recent uptick in unemployment, Mr Robertson added.
While he expects inflation may ease slightly in coming months, his latest forecasts have pushed the next rate cut back to February 2026.
The Real Estate Institute of Australia said the inflation spike dashed hopes of another rate cut this year and underscored how much was at stake for mortgage holders.
REIA President Leanne Pilkington said the higher inflation rate had the RBA pinned to a tight corner.
“We’re in a phase where the RBA’s next move carries real consequences for both confidence and affordability,” she said. “Stability in economic settings is essential to support investment, construction, and a sustainable housing supply.”
Lower interest rates have reignited demand in the housing market. Picture: Daily Telegraph / Monique Harmer
Ms Pilkington noted that while the RBA was expected to hold rates steady at its next meeting, the higher-than-expected inflation rate had slashed hopes for mortgage relief anytime soon.
