Key points:
- Experts are predicting at least one more interest rate increase this year, in May 2026, which would take Australia’s cash rate to 4.35%. Currently the rate is 4.10%.
- If the prediction comes true, even the best home loan rates could end the year in the mid-high 5% range.
- This would represent a major turnaround for rates in Australia following drops last year.
What are experts predicting for interest rates in Australia?
Overall, the consensus among experts is that borrowers should brace for another interest rate increase of 25 basis points by the Reserve Bank of Australia (RBA) in May 2026.
Among experts we analysed, most are forecasting this increase would be followed by a sustained period with no cash rate changes. Rates may then start falling again in late 2027.
There have already been two rate increases so far in 2026, in February and March. These hikes have been attributed to rising levels of inflation, with the most recent increase partly triggered by the ongoing war in the Middle East. The conflict “poses substantial risks” globally and to the Australian economy, according to the RBA.
However, some experts believe the potentially negative impact of the war on the Australian economy may actually limit the RBA’s appetite to increase rates further in 2026. The RBA hinted this could be a possibility when announcing its rate increase in March.
The average mortgage rate in Australia fell in the first half of 2025 and remained steady for the second half of the year, but is not set to increase in line with cash rate increases.
Interest rate predictions from the Big Four banks
Australia's four major banks are unanimous in predicting higher interest rates in Australia in 2026, with each predicting another rate increase in May. Here’s each bank’s rationale for their interest rate predictions:
NAB - Predicting +25 basis points in May 2026, then hold until mid-to-late 2027
According to Sally Auld, NAB’s Chief Economist, Aussies should expect a further 25 basis point rate rise in May, to align with predictions of an increase in inflation. However, in the longer term, NAB is predicting that the RBA will “likely need to begin easing rates back towards neutral in mid to late 2027”.
Commonwealth Bank - Predicting +25 basis points in May 2026
The Commonwealth Bank is predicting another rate hike in May to help close the ‘output gap’ which is the difference between the amount that the economy is producing and what it could produce without inflated prices. They acknowledge that the RBA meeting in May is still many weeks away and that the global economic climate could shift dramatically before then, especially given the ongoing Iran-US War, so it could be another lineball decision.
Westpac - Predicting +25 basis points in May 2026
Westpac expects a further hike in May to bring the cash rate back to its previous peak of 4.35%. However, the bank’s Chief Economist, Luci Ellis, said the possibility of a rate hold in May remains if there is a “swift and clear resolution of the war (and fall in oil prices) or a clear and sudden loss of momentum in domestic activity”. Beyond May, Westpac predicts rates will stay stagnant for the remainder of 2026, with potential rate cuts in November and December 2027 and February 2028.
ANZ - Predicting +25 basis points in May 2026
ANZ is also anticipating a rate rise in May, despite previously expecting rates to stay stagnant at 3.85% earlier in the year. They’re not the only experts needing to shift their interest rate forecasts in what has been a turbulent first few months of 2026.
Interest rate predictions from other banks
Here are the interest rate forecasts of some of Australia’s other large banks.
AMP Bank - Forecasting one more RBA rate hike in May
According to Dr Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Bank, the RBA’s concern over inflation makes a rate hike in May likely. However, Dr Oliver caveated this, given the fast-moving nature of events that precipitated the March increase. “There is a chance that the War will have ended by the next meeting seeing oil prices starting to fall,” he said.
Bendigo Bank - “May cash rate hike likely”
Earlier in the year, Bendigo Bank Chief Economist, David Robertson, said May 2026 was the most likely timing for an interest rate increase. However, this forecast was made prior to the March 2026 decision, which Bendigo Bank predicted would be a hold. More generally, Mr Roberstson said there could well be higher interest rates for some time to come in “a drawn-out tightening cycle, into 2027”.
Interest rate predictions from other economists
IG Markets
In one of the more dramatic predictions, Market Analyst, Tony Sycamore, said money markets are now forecasting a further 67 basis points of Reserve Bank rate hikes before the end of 2026. That would take the RBA’s cash rate to 4.85% (News.com.au).
EQ Economics
Managing Director, Warren Hogan, has predicted another rate increase in May and said the best chance of Australia avoiding further hikes “is if the governments pull back on their spending” - (Sky News Australia)
UBS
The international investment bank has predicted another 25 basis point rate hike in May 2026, followed by “a prolonged period of a peak in interest rates at 4.35%.” (The Motley Fool)
Reserve Bank of Australia interest rate outlook
The RBA’s statement following the recent rate increase signalled that further hikes could be on the cards, but that the level of uncertainty means all options remain open.
The split nature of the decision to hike in March (with five board members voting for an increase and four voting to hold) suggests May’s decision is not a foregone conclusion. But the Governor’s comments in the press conference after the decision hinted that even those who voted to hold saw the need to increase rates at some stage.
“They were still focused on the fact that there’d probably need to be another rate rise,” Bullock said.
Even the prospect of a recession in Australia may not be enough to deter the RBA from increasing rates to curb inflation.
“We don’t want to have a recession, but if it’s hard to get inflation down, then you know we’re going to have to deal with that possibly.”
What if the interest rate predictions come true?
If interest rates increase in line with most economists’ predictions, home loan interest rates would likely rise by a further 25 basis points in 2026. This would mean an increase of $86 per month in repayments on the average mortgage ($736,000), or an extra $1,032 per year, unless the borrower manages to refinance their home loan rate.
The table below shows how much mortgage repayments would increase on various loan amounts with the predicted 25 basis point rate increase.
When will interest rates in Australia go back down?
Given the high levels of inflation Australia is experiencing and the prospect of high inflation for some time to come, few economists are predicting interest rate cuts any time soon.
But among economists forecasting future rate cuts, including those at NAB and Westpac, the forecast is for rates to start dropping in mid-late 2027.
What drives interest rate forecasts?
Economists factor a wide range of metrics, domestic trends and international events when forecasting whether interest rates are likely to go up or down. But ultimately, they are trying to anticipate what the RBA will do. Below are the key factors the RBA typically considers when deciding whether to change interest rates.
1. Inflation: Australia’s rate of inflation is the single biggest driver of interest rate decisions. The Reserve Bank of Australia targets inflation between 2–3% over time, so forecasts largely hinge on whether inflation is expected to stay above or fall back within that range.
2. Employment: The RBA considers the employment rate too, as one of its dual functions (as well as managing inflation) is to achieve ‘full employment’. In very simple terms, if unemployment is rising the RBA might lower interest rates to stimulate economic activity.
3. Economic activity: Beyond the two key metrics it’s measured against (stable prices and full employment), the RBA looks at the performance of the economy more broadly to gauge whether there is too much or too little demand for goods and services. To do this it considers the likes of consumer spending, business investment and government spending.
4. Global economic conditions: Australia’s economy is heavily influenced by what happens overseas. The RBA looks at what’s happening with interest rates in other countries and jurisdictions (e.g. the United States and Eurozone), how international economies are performing and the price of oil and gas (currently being impacted by the conflict in the Middle East).
