iscover 
Building on increasing commentary that rates may rise next year, the Commonwealth Bank of Australia (CBA) has now revised its forecast, stating that it believes the Reserve Bank of Australia (RBA) will raise the current 3.6 per cent cash rate by 0.25 percentage points in February and then maintain a rate of 3.85 per cent until the end of 2026.
This is a change from the bank’s previous call for a steady cash rate through 2026.
However, a “large hiking cycle is unlikely to be needed”, the major bank’s economics team said.
“We see a rate hike as necessary to bring the economy back into balance and help return inflation back to its target. 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,” the team said.
“The economy has picked up more momentum than expected, and that strength is keeping inflation from easing. A small rate increase in February would guide inflation back toward the RBA’s target range of 2-3 per cent,” said CBA’s head of Australian economics, Belinda Allen.
“Inflation has proven more stubborn than forecast and we see signs of inflation persisting. That’s a key reason the RBA may need to act.
“We expect inflation to gradually return toward the midpoint of the target band by late 2027. A small rate rise next year would help set the foundation for a steady, sustainable period of growth.”
NAB: Rates to increase 50 bps
Similarly, on Tuesday (16 December), National Australia Bank (NAB) also revised its cash rate forecasts. It now expects a total rate increase of 50 basis points (bps) in 2026, with one 25-bp hike in February and another 25-bp hike likely to follow in May.
Both banks view economic activity as strong, but close to capacity constraints, meaning the economy is running close to its maximum output.
“Taken in conjunction with stronger growth outcomes and evidence of capacity constraints starting to bind, we believe an inflation outcome of this magnitude will force the RBA to execute a modest recalibration of monetary policy in 1H26,” it stated.
NAB’s chief economist, Sally Auld, commented on Tuesday (16 December): “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 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.”
Westpac: Rates on hold*
In contrast, Westpac has revised its outlook for the RBA cash rate to an extended hold for the whole of 2026.
Chief economist Luci Ellis said that although the bank sees inflation heading back to the target rate in the year ahead, this will "not be enough to shift the RBA's more hawkish mindset."
If Westpac's broader forecasts are borne out, however, rate cuts are feasible in February and May 2027.
"There are risks on both sides of our base case view," said Ellis.
"We reserve the option to put rate cuts in 2026 back on the table if the labour market starts to unravel. We think that rate hike talk is premature. 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."
ANZ: Rates on hold
Australia and New Zealand Banking Group (ANZ) economists expect the cash rate to remain at 3.6 per cent over its forecast horizon.
In ANZ’s Research Quarterly (published 16 December), head of Australian economics, Adam Boyton, said that the economy was in an unusual position as it entered 2026.
“GDP growth is around potential, the cash rate is around neutral, and we see the labour market as broadly in balance,” he said.
“That unusual starting point for the economy gives us an unusual forecast for the cash rate – we expect it to remain at 3.60 per cent over our forecast horizon.
“Signs of ongoing inflation pressures in the (new) monthly CPI, GDP growth running around the RBA’s estimate of potential and the RBA’s view that the labour market is tight all suggest the RBA Board is unlikely to lower interest rates in the near term.
“At the same time, hiking rates given the drift higher in the unemployment rate this year would potentially be quite a shift in policy for a central bank that has been keen to preserve post-pandemic gains in the labour market. That leaves us forecasting the RBA to be on an extended hold with the cash rate at 3.60 per cent.”
Boyton concluded, however, that should the RBA board adjust the cash rate in the first half of 2026, a hike would be much more likely than a cut.
The differing forecasts come after the RBA voted unanimously to hold the cash rate steady at 3.60 per cent for the final rate announcement of the year (9 December), as was widely expected.
The decision marks the third consecutive month without a change and the first time in a year that rates have remained unchanged for more than two decisions.
The decision came after consumer price index (CPI) rose 3.8 per cent in the 12 months to October 2025, up from 3.6 per cent in the 12 months to September 2025 and exceeding the RBA’s 2–3 per cent target band.
Trimmed mean inflation was 3.3 per cent in October, up from 3.2 per cent in September.
*This article has been updated to reflect Westpac's latest forecast of a rate hold, announced this morning (17 December). Westpac had previously (9 December) predicted two rate cuts.
[Related: Is it too early to talk rate hikes? Economists divided]