In a blow for Australians with a mortgage and those hoping to get into the property market, two of Australia’s biggest banks now say they expect the Reserve Bank of Australia to raise rates in February.
Commonwealth Bank - Australia’s largest mortgage lender - and National Australia Bank have both updated their cash rate forecasts, predicting the central bank will hike rates by 0.25% at its first monetary policy meeting of 2026.
NAB is also forecasting that continuing inflationary pressures in the Australian economy will force the RBA to raise rates again in May.
The details
CBA and NAB have both updated their cash rate forecasts, predicting the RBA’s monetary policy committee will hike rates at the first meeting back after its summer break on the 2nd and 3rd of February 2026.
That would take Australia’s cash rate from the current 3.6% up to 3.85%.
Previously, both banks’ economic teams were predicting the cash rate would remain on hold indefinitely.
CBA’s Head of Australian Economics, Belinda Allen, says the change of forecast reflects three key developments.
“One: The (Australian) economy is already at its speed limit, and despite recent easing, the labour market remains relatively tight,” she says.
“Two: The economy is expected to accelerate a little above its speed limit through late 2025 and early 2026.
“Three: The RBA’s reaction function has shifted and the hurdle to hike is lower than we had anticipated.”
The shift follows recent data, which showed inflation remains persistent and economic growth is stronger than expected, plus warnings from RBA Governor Michele Bullock of the possibility of a rate rise.
“We see a rate hike as necessary to bring the economy back into balance and help return inflation back to its target,” CBA’s Belinda Allen says.
“But a large hiking cycle is unlikely to be needed.
“Instead, we expect a degree of fine-tuning by the RBA, following the economy’s strong response to the earlier shallow cutting cycle.”
National Australia Bank has gone further.
It believes persistent inflationary pressures in the economy will force the RBA to hike in February and then follow it up with another 0.25% rate rise in May of next year.
“The economy is already at trend growth, and private final demand is running stronger than the RBA anticipated,” the bank’s Chief Economist, Sally Auld, says.
She also cites the findings of NAB’s regular business survey, which indicates Australian companies are in better shape than expected.
“The survey… suggests that businesses report less pressure on margins over recent months,” she says.
“When viewed in the context of a central bank that has expressed concern about upside risks to inflation and uncertainty around the stance of policy at present, we think the RBA will need to make a modest recalibration of monetary policy in the first half of this year.
“50bps (0.50%) of tightening should see the real cash rate align to a more appropriate level, taking monetary policy to a setting better able to sustain an economy growing at trend but no stronger,” Ms Auld says.
Rate comparison site Canstar says for an owner-occupier paying principal and interest on an average-sized $600,000 loan, a 0.25%-point hike by the RBA (if passed on in full by their retail bank) would increase their minimum monthly repayments by around $90 a month.
However, if there are two cash rate hikes next year, as NAB is forecasting, Canstar says this would increase their monthly repayments by around $180.
Canstar’s Data Insights Director, Sally Tindall, says the rate hike predictions by two of the big four banks shouldn’t come as a surprise, given comments last week by RBA Governor Michele Bullock that additional rate cuts were “not needed”.
“The RBA Governor’s blunt warning last week put the nation formally on notice.
“Cash rate cuts are now behind us, and what’s in front could well be a rate hike,” Ms Tindall says.
“Two of Australia’s biggest banks have joined the chorus, both suggesting the first hike could come as soon as February.
“While these cash rate forecasts might not unfold exactly as planned, households with a mortgage should prepare for the possibility of hikes, and not just one.”
Canstar also highlights changes in the fixed home loan rate market, giving clues to banks’ expectations of the direction of interest rates.
The comparison firm says at least fifteen banks have increased at least one retail fixed rate product since the Reserve Bank of Australia’s last board meeting (where the central bank elected to keep rates on hold) on Tuesday, the 9th of December 2025.
The alternative view
Australia’s second-largest bank, Westpac, has also updated its interest rate forecast.
Previously, it had been predicting that there would be up to two more interest rate cuts in 2026, but now it has joined ANZ in forecasting that the RBA cash rate will remain at 3.6% indefinitely.
“We think that rate hike talk is premature,” the bank’s Chief Economist Luci Ellis says.
Before taking on her role at Westpac, Ms Ellis was an Assistant Governor at the Reserve Bank, so she has a good insight into the central bank’s monetary policy considerations.
“We cannot rule out that more near-term bad news on inflation spooks the RBA and induces a near-term hike, but in our view, it is not the most likely outcome.”
Nevertheless, Ms Ellis admits “there are risks on both sides of our base case view,” saying that her team reserves “the option to put rate cuts in 2026 back on the table if the labour market starts to unravel.”
ANZ’s Head of Australian Economics, Adam Boyton, says he still expects the official cash rate “to remain at 3.60% over our forecast horizon.”
Interestingly, money markets - who daily bet millions of dollars on the future movement of Australian interest rates - have landed somewhere in between the forecasts of Australia’s big 4 banks.
As of the 17th of December 2025, they had fully priced in one 0.25% RBA rate rise by August 2026, with a 75% chance of another rate hike by the end of next year.
The take-out
No matter who is right, the bottom line is that those hoping for more rate cuts from the Reserve Bank of Australia are likely to be disappointed.
Australians with a mortgage need to prepare for higher interest rates, or a period where rates will remain roughly around their current level.
If you are struggling with your existing repayments, talk to your mortgage broker or your bank as soon as possible to see if you can qualify for a better interest rate or deal.
Those hoping to enter the property market next year will also have to be prepared to see their borrowing power curbed, so you may need to be more realistic in your property choices.
With interest rates either set to head up or stay at current levels and property prices set to keep growing, the message is clear: now is the time to buy, as this is probably as good as it gets for a long, long time.