Anyone hoping for lower mortgage repayments this year may want to think again. Economists say inflation remains too high for the Reserve Bank to consider cutting rates anytime soon, despite early optimism that relief was on the horizon.
Inflation Keeps Pressure on the Reserve Bank
New data from Oxford Economics Australia suggests that inflation reaccelerated in late 2025, catching both the Reserve Bank of Australia (RBA) and market forecasters off guard. The report found that core inflation — the RBA’s preferred measure because it strips out short-term volatility — was sitting at 3.2% in the year to November, above the central bank’s 2–3% target range.
According to the analysis, several factors contributed to the rebound, including higher electricity, childcare, tobacco, and local government costs. At the same time, Australian households began spending more in response to previous rate cuts, effectively fuelling demand just as the RBA was hoping for a slowdown.
The result is an economy that’s running warmer than expected, leaving policymakers with little choice but to keep monetary settings tight for longer.
Rate Cuts Unlikely — But Will There Be Another Hike?
Oxford Economics now expects the RBA to maintain its restrictive stance throughout 2026, with any talk of rate cuts “off the table” until inflation firmly returns to target. The firm predicts inflation will ease to 2.8% by the end of the year, only reaching the middle of the RBA’s band sometime in 2027.
Some major banks are even forecasting another rate hike. The Commonwealth Bank expects a February increase, while NAB is predicting moves in both February and May, potentially lifting the cash rate back to 4.1%. Others, including ANZ and Westpac, expect the RBA to stay on hold — choosing patience rather than more tightening.
A Balancing Act for the RBA
Oxford Economics’ head of research, Harry Murphy Cruise, said the RBA faces a tricky balancing act: keeping inflation in check without pushing unemployment too high. The firm expects the jobless rate to rise from 4.3% to 4.6% by mid-2026 as the economy cools, reports The West.
RBA deputy governor Andrew Hauser has also hinted that the next move in the cash rate is more likely to be up than down, reinforcing the message that the central bank is not ready to declare victory over inflation just yet.
Households Brace for a Longer Wait
For everyday Australians, the message is clear — relief isn’t coming soon. Households that had begun factoring in lower repayments will likely need to adjust their expectations, as inflation proves stickier than forecast and the RBA keeps rates high well into next year.
Economists say that while the worst of the price surge may be over, the path back to stability will take patience — and perhaps a little endurance.
