Interest Rate Cuts Australia: RBA Forecasts & Predictions

After years of waiting for relief, Australian borrowers now face the opposite reality — the Reserve Bank has already hiked twice in 2026, pushing the cash rate to its highest level since 2015. With the next RBA decision just weeks away, the question isn’t whether cuts are coming, but when — and whether they’ll arrive in time to matter.

Current RBA Cash Rate: 4.10% ·
Expected End-of-Quarter Rate: 4.35% ·
Historical Peak Rate: 17% ·
Recent RBA Hikes in 2026: 2 ·
NAB Forecast Cuts: 2 in 2027

Key figures from the RBA and market trackers put the current landscape in focus.

Is Australia going to cut interest rates?

Not imminently. The RBA raised the cash rate by 25 basis points to 4.10% at its March 2026 meeting, citing resurgent inflation and capacity pressures in the domestic economy (RBA Official). That followed an earlier hike in February that pushed the rate from 3.60% to 3.85% (RBA Official).

Current RBA stance

The RBA noted in its March decision that fuel prices had risen and capacity pressures in the economy had strengthened — factors that tipped the balance toward another increase (Craggle). The bank’s inflation target remains 2–3% (RBA Official), and with price growth accelerating in late 2025, policymakers felt compelled to act.

Market expectations from ASX RBA Rate Tracker

The ASX 30 Day Interbank Cash Rate Futures contract for May 2026 sits at 95.745, implying a 74% probability of a 25 basis point hike at the 5 May meeting (ASX Official). That’s a strong signal from markets, though not a certainty — the RBA board will weigh the latest data before deciding.

The implication: borrowers hoping for near-term relief should adjust expectations. The RBA’s focus is squarely on inflation, and until price growth cools materially, further increases remain on the table.

What is the prediction for interest rates in Australia?

Bank economists are more hawkish than markets. The Commonwealth Bank forecasts the RBA cash rate will peak at 4.35% in 2026, requiring two additional 25 basis point hikes beyond the current level (Motley Fool Australia). CBA expects the next increase to come at the May meeting, followed by another move in either June or July.

Bank forecasts for 2026-2027

Westpac takes an even more aggressive stance. The bank’s revised forecast predicts hikes at the May meeting, 16 June, and 11 August — pushing the cash rate to 4.85% by the end of 2026 (Westpac IQ). Luci Ellis, Westpac’s Chief Economist, points to above-target inflation and a still-tight labour market as justification for the aggressive path.

ANZ and NAB both align more closely with CBA, projecting a peak of 4.35% — suggesting they expect just one or two more hikes this year (Craggle). All four major banks, however, forecast further increases rather than cuts in 2026.

NAB sees two cuts in 2027

National Australia Bank’s outlook stands apart from the broader hawkishness. While NAB expects the rate to rise to 4.35% in May, it then forecasts two cuts in 2027 — an earlier reversal than Westpac’s February 2028 start date. That would bring relief to mortgage holders, though the timeline remains uncertain.

The pattern: major banks see hikes through 2026, with relief expected in 2027-2028. But the exact timing and magnitude of cuts depends heavily on whether inflation eases as anticipated.

Will interest rates drop below 5% again?

They already are below 5% — the current rate sits at 4.10%, well under that threshold. The question, however, is whether rates will stay there and eventually fall further. For the near term, the answer appears to be no. Both major bank forecasts and market pricing suggest further increases before any meaningful retreat.

Short-term outlook

CBA expects a peak of 4.35%, with Westpac projecting 4.85%. Even the softer economist consensus sits at 3.7% through June 2027 — higher than current levels. That suggests borrowers face a period of elevated rates, not immediate relief.

Factors influencing cuts

The trajectory depends on inflation. The RBA’s target of 2–3% remains the benchmark, and until underlying price growth settles within that band, the bank is unlikely to pivot toward cuts. Capacity pressures in the labour market and geopolitical uncertainty — notably the Middle East situation affecting fuel prices — complicate the outlook (Canstar).

What this means: borrowers should plan for rates above current levels through at least mid-2027. Even if cuts begin in 2027, the pace is likely to be gradual.

Will interest rates drop to 3% again?

Most economists consider this unlikely in the near term. The conditions that produced the sub-3% rates of the early 2020s — the pandemic shock and subsequent rate cuts — are not present today. Inflation has reasserted itself as the dominant concern, and the RBA is now fighting to bring price growth back under control rather than stimulating a pandemic-weakened economy.

Historical context

From 2019 through early 2022, the RBA held the cash rate at 0.75% or lower. The post-pandemic inflation surge forced a rapid tightening cycle, bringing rates to their highest level in over a decade. That trajectory has since partially reversed — the RBA cut three times in 2025, dropping to 3.60% — but the underlying inflation challenge has pushed rates back up.

Long-term predictions

Westpac forecasts cuts starting in February 2028, with four reductions per quarter through the end of that year (Westpac IQ). Even under that scenario, the rate would decline from peak levels rather than return to the ultra-low floors of the 2010s.

The catch: returning to 3% or below would likely require inflation to fall well below target and economic conditions to deteriorate significantly — outcomes the RBA would prefer to avoid.

How long did 17% interest rates last in Australia?

Australia’s historical peak of 17% occurred during the late 1980s, when the RBA was battling hyperinflation following the 1987 stock market crash. That era saw the cash rate spike to extreme levels, pushing mortgage costs to extraordinary heights by modern standards. Home loans at 17% were not hypothetical — they were the reality for borrowers throughout much of 1989 and into 1990.

Peak period details

The RBA pushed rates sharply higher to cool an overheating economy, with the cash rate peaking around 18% in 1990. For borrowers, that translated to variable mortgage rates exceeding 17% — a stark reminder of what aggressive monetary tightening looks like in practice. The period of peak rates lasted roughly 12-18 months before the RBA began cutting.

Historical home loan rates

By comparison, today’s 4.10% rate is historically modest. Even the projected peaks of 4.35% (CBA) or 4.85% (Westpac) are far below the levels that defined the 1980s and early 1990s. That context offers some comfort: while borrowers face real pressure from rising rates, the current environment remains far less extreme than Australia’s previous inflation-fighting campaigns.

The timeline reveals how dramatically the RBA’s direction has shifted within months.

Summary

The RBA’s pivot toward tightening in 2026 marks a sharp reversal from the rate cuts borrowers received throughout 2025. With the cash rate at 4.10% and further increases forecast by all major banks, the path to relief looks longer than many hoped. Market pricing and bank economists point to a May hike as the most likely outcome — though a hold remains possible. What seems clear is that cuts, when they come, won’t arrive in 2026. For Australian mortgage holders, the immediate choice is stark: absorb higher repayments now, or explore refinancing options that might offer better terms elsewhere. Borrowers who wait for relief through 2026 will likely face continued pressure on household budgets, with the earliest reprieve possibly arriving in late 2027 if NAB’s forecast holds.