Australian Interest Rate Forecast: Where Are Rates Heading in 2026 and 2027?

Forecasting interest rates has always been difficult. In 2025, the RBA cut rates three times and the consensus was that we were entering a sustained easing cycle. Then February 2026 happened—a surprise hike back to 3.85 per cent that caught most borrowers and more than a few economists off guard.

So where do rates go from here? We have pulled together the latest forecasts from the major banks, the RBA's own guidance, and independent economists to give you the clearest picture possible.

Where We Are Now

The RBA cash rate stands at 3.85 per cent as of March 2026. Here is how we got here:

• May 2025: First cut to 3.85 per cent after holding at 4.35 per cent since November 2023
• August 2025: Second cut to 3.60 per cent
• November 2025: Third cut to 3.35 per cent
• February 2026: Surprise hike back to 3.85 per cent as inflation reaccelerated

The February hike was driven by stronger-than-expected consumer spending, a tight labour market, and inflation ticking back up above the RBA's 2 to 3 per cent target band. The rate cuts of 2025 had done their job stimulating the economy—perhaps too well.

What the Major Banks Are Forecasting

The four major banks have divergent views on what happens next, which itself tells you something about the uncertainty:

Commonwealth Bank (CBA)

• May 2026: Hike to 4.10 per cent
• End of 2026: Hold at 4.10 per cent
• 2027: Gradual cuts beginning mid-year, reaching 3.60 per cent by December 2027

CBA's view is that one more hike is needed to contain inflation, followed by an extended pause. They see the economy slowing enough through late 2026 to justify a return to easing in 2027.

Westpac

• May 2026: Hike to 4.10 per cent
• August 2026: Hold
• Late 2026: Possible cut to 3.85 per cent if inflation moderates
• 2027: Two to three cuts, reaching 3.10 to 3.35 per cent

Westpac is the most optimistic about the pace of easing once it resumes. They believe the February hike will cool the economy faster than the market expects.

NAB

• May 2026: Hike to 4.10 per cent
• 2026: Hold through the rest of the year
• 2027: Gradual easing to 3.60 per cent

NAB's forecast is the most cautious. They see sticky services inflation keeping the RBA on hold for longer than markets expect.

ANZ

• May 2026: Hold at 3.85 per cent
• 2026: No further hikes—February was a one-off correction
• Late 2026: Cut to 3.60 per cent
• 2027: Further easing to 3.10 per cent

ANZ is the outlier. They believe the February hike was sufficient and that the economic data will soften enough to prevent a May move. If they are right, mortgage holders dodge a bullet.

What the RBA Is Telling Us

The RBA has been deliberately vague about forward guidance, and for good reason—they got burned by their own forecasts in 2025. Governor Bullock has emphasised three things:

1. Data dependence: Each meeting is live. The board is not locked into a path in either direction
2. Inflation remains the priority: Until trimmed mean inflation is sustainably within the 2 to 3 per cent band, the RBA will err on the side of tighter policy
3. The labour market is key: Unemployment at 4.1 per cent is below what the RBA considers full employment. Until it rises meaningfully, wage pressures will persist

Reading between the lines, the RBA wants to see at least two quarters of moderating inflation before it considers cutting again. That puts the earliest realistic cut somewhere around November 2026 at the earliest—assuming no further shocks.

What This Means for Mortgage Rates

Mortgage rates do not move in lockstep with the cash rate. Lenders price in competition, funding costs, and their own margin targets. Here is what current and forecast cash rate scenarios mean for actual mortgage repayments:

Current Rates (Cash Rate 3.85 Per Cent)

• Best variable rates: Around 5.89 to 6.15 per cent
• Average variable rate: Around 6.40 per cent
• 2-year fixed: Around 5.69 to 5.99 per cent
• 3-year fixed: Around 5.59 to 5.89 per cent

If Cash Rate Rises to 4.10 Per Cent (May 2026)

• Best variable rates: Around 6.14 to 6.40 per cent
• Monthly impact on $600,000 loan: Approximately $90 more per month
• Monthly impact on $800,000 loan: Approximately $120 more per month

Fixed vs Variable: What Makes Sense Now

The current rate environment creates an unusual dynamic. Fixed rates for two and three year terms are sitting below the best variable rates. That is the market telling you it expects rates to be lower in the medium term, even if they go up once more in the short term.

Consider fixing if:

• You want certainty and your budget cannot absorb another $100 to $150 per month in repayments
• You are comfortable locking in for two to three years at rates below current variable
• You do not need offset account access on the fixed portion

Stay variable if:

• You have a comfortable buffer and can absorb one more hike
• You value the flexibility to make extra repayments or refinance
• You believe ANZ is right and the May hike will not happen

A split loan—part fixed, part variable—gives you the best of both worlds and is worth discussing with your broker.

The Bigger Picture

Looking beyond 2026, the structural factors suggest rates will settle lower than the peaks of 2023 and 2024 but higher than the emergency lows of 2020 and 2021. A neutral cash rate somewhere between 3.00 and 3.50 per cent—translating to mortgage rates of 5.00 to 5.50 per cent—is the most likely medium-term landing zone.

That means the days of 2 per cent mortgages are not coming back, but nor are we likely to see 7 per cent variable rates again unless something goes seriously wrong with inflation.

What You Should Do Right Now

Regardless of where you think rates are heading, there are concrete steps to protect yourself:

1. Review your current rate: If you have not refinanced in the past 12 months, you are almost certainly paying more than you need to. Lenders reserve their best rates for new customers
2. Stress-test your budget: Can you afford repayments if the cash rate hits 4.10 per cent? If not, consider fixing now to lock in certainty
3. Build an offset buffer: Every dollar in your offset account reduces your interest charge. Even modest savings make a difference over time
4. Talk to a broker: A broker can compare 30 to 40 lenders in an afternoon and find you a rate that your current bank will never proactively offer you

Rate forecasts are educated guesses at best. What you can control is your loan structure, your lender, and your buffer. Get those right and the rate cycle becomes far less stressful.