Borrowers brace: Rate cut expectations pushed back to 2026

Borrowers could be left waiting well into next year for the next interest rate cut, with Australia’s largest lender ruling out further relief until 2026.

Commonwealth Bank (CBA) has adjusted its forecast off the back of the September rate hold, and a cut at the Reserve Bank of Australia’s (RBA) next meeting in November is no longer on its cards.

The bank left the cash rate on hold at 3.60% this week in a largely expected move – still a disappointing outcome for borrowers who were told to expect four or more rate cuts this year.

CBA’s updated forecast comes after National Australia Bank made a similar call on the grim future for rate cuts last week after the release of worrying inflation data.

While the recent uptick in headline inflation has been largely attributed to the roll off of electricity rebates, governor Michele Bullock faced a barrage of media questions this week on how the RBA will act if the upcoming quarterly inflation data shows similar findings.

Ray White Group chief economist Nerida Conisbee said it was clear the bank was “prioritising inflation vigilance” and not discounting the monthly findings, despite its assertions the measure was flawed.

The bank has long preferred to rely on quarterly data rather than monthly indictors, stating the latter includes to many volatile items to be a reliable snapshot of the economy.

CBA head of Australian economics Belinda Allen said the bank anticipates this all-important quarterly data will also show an increase in trimmed mean inflation, likely ruling out rate cuts until early 2026.

September hold analysed

While the RBA’s decision to hold the cash rate this week was not unexpected, how it will translate for borrowers moving into November and December remains to be seen.

The Australia Institute chief economist Greg Jericho labelled the decision “very cruel”, adding borrowers need more cuts.

“All the key economic data supported another interest rate cut, which would have given borrowers much-needed relief after three difficult years,” he said.

Ms Conisbee said the hold “demonstrates the RBA’s careful approach when facing conflicting economic indicators”.

“While the labour market has clearly softened, the central bank appears concerned that premature easing could reignite price pressures,” she added.

“Despite governor Bullock’s focus on underlying measures, which showed trimmed mean inflation falling to 2.6%, the central bank appears unwilling to ease policy while headline inflation sits at the top of the target band.”

The bank’s next decision on 4 November will benefit from not only the quarterly inflation data for June-September, but further labour market findings as well.

In the meantime, borrowers are also at the mercy of continuing global economic volatility, which looks to be increasingly narrowing the chances for more relief.

“The global economy remains a worry and should not be undersold,” Deloitte Access Economics head Pradeep Philip warned. “Geopolitics is driving uncertainty and remains little understood; the future drivers of growth, business investment and innovation, continue to languish.

“This is the conundrum the RBA is grappling with – holding back rate cuts for too long means growth suffers; cutting too fast brings inflation risks.”

Despite this, Mr Philip says a path through to a rate cut could still be cleared if underlying reflation remains within the RBA’s 2-3% target range.

Ms Bullock was characteristically reluctant this week to divulge anything around the RBA’s thinking ahead of its next meeting, though acknowledged cutting rates later this year did not depend entirely on trimmed mean inflation.

Instead, the governor aimed to spin a no more rate cuts scenario into a positive for pinched households.

“We know that many households with mortgages have actually been saving rather than spending everything,” she said. “As their mortgage repayments have come down, they’ve opted not to reduce their repayments, they’ve maintained them, which suggests some caution.

“One upside scenario is they react to that and start consuming again. That’s good for business and good for employment. It’s not a bad news scenario and if we don’t lower interest rates further, I wouldn’t say that’s necessarily a bad news story.”

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