By
Mortgage brokers heading into 2026 are confronting a sharply divided outlook on interest rates, with one camp warning of renewed hikes and another – led by Westpac – arguing that the Reserve Bank is more likely to keep slicing the cash rate.
For borrowers already buffeted by the rapid tightening of 2022–23 and the early-stage easing in 2025, the difference between those scenarios is far from academic. It could spell the gap between stabilising household budgets and another round of repayment stress.
A recent survey of major economists reported by the Australian Financial Review points to a growing view that the Reserve Bank will not be done with rate rises this cycle. The consensus in that poll is that inflation will remain stubbornly high over the next year, forcing the central bank to lift the cash rate at least twice.
Some respondents expect the first move as early as February, with others tipping another increase around May as services and housing costs continue to bite.
Their argument is simple: domestic price pressures have not cooled fast enough, particularly in rent, utilities, insurance and other services. A chronic shortage of new housing, rapid population growth, higher wages and elevated energy costs are all feeding into persistent inflation, keeping it above the RBA’s comfort zone.
On that analysis, the cash rate may need to rise from current levels before the RBA can credibly declare victory over inflation. Some economists have even suggested the RBA could end up leading global central banks into a second phase of tightening if local price pressures prove more stubborn than those in North America or Europe.
For mortgage holders, that camp’s central message is clear: don’t assume the peak is behind us. In their view, any relief delivered by the rate cuts already implemented in 2025 risks being temporary.
Westpac’s economics team is effectively on the other side of the trade. Its latest outlook foresees four further cuts to the cash rate, taking it from 3.85% to 2.85% by early 2027 – the lowest level since December 2022.
Chief economist Luci Ellis, a former assistant governor at the RBA, expects the easing cycle to restart in August once the June quarter inflation figures are in, with additional 25-basis-point reductions pencilled in for November, and then February and May next year. Under Westpac’s profile, the cash rate falls from a peak of 4.35% to a trough of 2.85%.
Ellis argues that the bigger risk now lies on the growth side of the ledger rather than in a fresh inflation flare‑up. Weak economic activity, flagging household spending and a softening labour market are all cited as reasons why monetary policy will need to provide “further support” rather than a renewed brake.
“The risks remain on the downside,” Ellis said. “It is possible that some of these cuts come a bit faster than the ‘cautious’ path we currently have pencilled in.
“This will depend on the evolving data flow, particularly for the labour market and inflation, as well as the RBA’s evolving beliefs about what constitutes full employment.”
Westpac still anticipates 25-basis-point moves in August and November, but has added two more steps in early 2026, leaving room for one of those to be brought forward to December 2025 if inflation and jobs data weaken faster than expected. In that scenario, the cash rate would end up at what Ellis describes as the lower end of the neutral range – a setting that is neither restraining the economy nor actively stimulating it.
For mortgage brokers, the split outlook makes product selection, client communication and risk management more complex. Clients are asking a simple question – “Are rates going up or down?” – and the honest answer is that credible experts now disagree.
If the AFR survey camp is right and the RBA delivers more hikes, today’s fixed rates could end up looking cheap in hindsight, and borrowers who opted to stay variable may be exposed to higher‑than‑expected repayments in 2026. That would particularly affect first‑home buyers who stretched to get into the market during the recent price upswing, as well as investors who are already cash‑flow negative.
If Westpac’s path plays out instead – with the cash rate gliding down to 2.85% – variable borrowers are likely to benefit steadily over the next two years, while those locking in now risk missing out on further relief. According to analysis cited by the bank, four additional 25-basis-point cuts would provide material cash‑flow support for households carrying larger debts.
The early signs of this easing are already visible in mortgage pricing. After the 2025 reductions, some fixed products have slipped back below 5%, and a number of smaller and regional lenders have launched offers around 4.99%, providing more competitive options for rate‑sensitive borrowers seeking certainty.
