Interest rate increase or decrease? How borrowers will win and lose in the RBA’s inflation battle – realestate.com.au

From mortgage stress to surprise relief, Australia’s inflation battle means the next decision on cash rates could reshape household budgets overnight.

With two weeks to go until the Reserve Bank’s first meeting for 2026, Australian mortgage holders are still experiencing mixed signals about what the home loan repayment trajectory will look like this year.

Recent moves by major banks to increase their fixed mortgage rates indicate that lenders are anticipating several increases from the RBA. If successful, variable borrowers could make hundreds of additional mortgage payments each month.

However, the jury is still out on whether borrowers will see their repayments increase in the coming months dip in inflation earlier this month this was welcome news for households, with average inflation falling to 3.2% in the 12 months to November.

The trimmed average is calculated by “trimming” out the most volatile items that the Consumer Price Index considers, the items with the largest price changes, to get a more realistic picture of the underlying inflation trend.

While the figure is still outside the bank’s target range, it is a welcome relief that looks set to lead to a rate fix rather than a rate hike next month, despite the country’s biggest lenders sending a different message.

With fixed interest rates starting to rise again, households are already preparing for new pressure on their finances before the RBA has even made a call.

Fixed rates on the rise

The Commonwealth Bank has raised its three-year interest rate by a significant 0.70 percentage points, a jump equivalent to more than two rate increases.

It comes after Macquarie Bank also increased interest rates by 0.25% on all its fixed loans.

The number of lenders offering fixed interest rates below 5% has dropped noticeably over the past month, even as consumers have been soaking up the holidays and spending big.

Commonwealth Bank is extending its fixed interest rate terms. Photo: Getty

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Rising fixed interest rates are a signal that banks are preparing for higher financing costs.

The Australian Bureau of Statistics (ABS) expenditure indicator for November showed a 1% increase, meaning nominal expenditure is 6.3% higher over the past year.

If the RBA hikes rates within two weeks in a bid to stem Christmas and New Year spending, variable rate holders are likely to have to pay more as lenders pass this on to customers.

Assuming a starting interest rate of 5.76%, Mortgage Choice has calculated the additional amount that borrowers with different mortgage levels would have to pay from next month:

However, borrowers may be spared a rate hike for now, largely thanks to the Reserve Bank’s caution in interpreting new inflation monitoring data sets.

The RBA is now relying on a comprehensive, monthly data indicator from the ABS, introduced in an effort to help the bank make decisions faster and forecast more accurately without having to wait for quarterly data.

However, Governor Michele Bullock has said the bank needs time to adjust to the data, giving borrowers some time to buy.

While Bullock has said rate cuts are off the table for now, further cooling of inflation as the year progresses could see fortunes turn around later in the year.

If interest rates were lowered, borrowers could enjoy big savings:

It comes as employment growth fell this month, continuing the slowing pattern of the rest of 2025.

Stephen Smith, partner at Deloitte Access Economics, says the recent weakness makes real wages unlikely to rise.

“The RBA will remain on hold in February,” he predicts. “Although the data released later in January – particularly December’s labor market and inflation figures – will be important pieces of the puzzle.”

Both the Commonwealth Bank and National Australia Bank have forecast a rise in interest rates for February – a forecast that remains unchanged since the latest inflation data.

Westpac and ANZ have not factored in any change in the spot rate in the near future, while the Australian Stock Exchange shows markets pricing in just a 22% chance of a rise.

The RBA will make its next cash rate decision on February 3.

This article first appeared on Mortgage choice and is republished with permission.