• Inflation remains above the RBA’s 2-3% target band, keeping policy settings under review.
• Most economists expect the RBA to hold the cash rate in February 2026.
• Some forecasts point to the risk of further interest rate increases later in 2026 if inflation proves persistent.
• Understanding the outlook can help you plan your next home loan move with more confidence.
Update: The RBA has now made its February decision. See what it means for borrowers in our latest RBA Decision Day update.
At its most recent meeting in December, the Reserve Bank of Australia (RBA) left the cash rate at 3.60%, maintaining a cautious approach as it assesses how inflation and economic conditions are evolving.
While headline inflation has moderated from earlier peaks, it remains above the RBA’s 2-3% target band.
The RBA has repeatedly noted that services inflation, including areas such as rents and insurance, remains elevated, reinforcing the need for confidence that inflation will return to target on a sustained basis.
In recent statements, the RBA has said it is looking for “sustained evidence” that inflation will remain within target before becoming comfortable with the longer-term direction of interest rates.
Policymakers have also acknowledged that progress across different parts of the economy has been uneven.
Economic growth remains modest. National accounts data points to subdued expansion, while household spending continues to be constrained by cost-of-living pressures.
Labour-market indicators suggest conditions have softened compared to earlier periods, with unemployment edging higher, although the labour market remains historically tight.
Together, these factors leave the RBA balancing the risk of moving too quickly against the risk of holding policy settings unchanged for longer than necessary.
What is the RBA cash rate?
Understanding how the RBA’s cash rate works helps explain why even small decisions can matter for borrowers.
The Reserve Bank of Australia (RBA) sets the official cash rate, which is the interest rate banks pay on overnight loans between financial institutions.
This rate acts as the foundation for many borrowing costs across the economy, including variable and some fixed home loans, personal loans, and savings rates.
Changes to the cash rate influence how much borrowers pay (or save) in interest. When the RBA cuts rates, borrowing typically becomes cheaper, but lenders don’t always pass on the full reduction to customers.
Source: Reserve Bank of Australia
Will the RBA hold or move in February? Experts remain split
Many economists expect the RBA to hold the cash rate steady at its February 2026 meeting, allowing more time to assess whether recent inflation progress is sustained. However, views differ on what comes next.
Commonwealth Bank economists have warned that inflation risks remain elevated, tipping a potential 0.25 percentage point rate increase as early as February if price pressures fail to ease as expected.
Westpac economists, meanwhile, expect the RBA to remain on hold in the near term, but have also noted that persistent services inflation could delay any easing and keep the risk of higher rates later in 2026 on the table.
Those expecting a hold argue that earlier rate changes are still flowing through the economy, and that household spending and broader growth remain fragile.
From this perspective, waiting for additional data early in 2026 may reduce the risk of unnecessary policy swings.
Others see ongoing upside risks to inflation, particularly if services price pressures remain sticky, or demand proves more resilient than expected.
Under this view, some economists believe the RBA may need to consider further tightening later in 2026 if inflation does not move convincingly back into the target range.
Most commentators agree that upcoming inflation and labour-market data released around the February meeting will play a key role in shaping expectations for the remainder of the year, even if no immediate change is made.
How refinancing, with or without an RBA move, could affect your mortgage
Whether the RBA holds rates in February or adjusts policy later in the year, borrowers may still have opportunities to improve their loan position.
Even without a cash-rate change, refinancing to a lower interest rate can reduce repayments or help shorten the life of a loan.
If rates were to move lower in the future and those changes were passed on by lenders, the potential savings could increase.
The following examples are illustrative only and based on hypothetical interest rates, not current market offers.
Loan scenario: $700,000 over 30 years
Scenario | Before refinance | After refinance (same monthly payment) |
Loan amount | $700,000 | $700,000 |
Loan term | 30 years | 30 years |
Interest rate | 5.50 % p.a.* (variable) | 5.29 % p.a.* (variable) |
Monthly repayment | $3,974.52 | $3,882.79 |
Monthly saving | – | $91.73 |
Extra monthly repayment | – | $91.73 (voluntary, to match previous repayment) |
Total repayments | $1,430,827 | $1,417,064 |
Total interest paid | $730,827 | $717,064 |
Interest saved | – | $33,025 (approx.) |
Years to pay off | 30 years | 28 years 5 months |
Years saved | – | 1 year 7 months |
0.25% RBA move + refinance
If interest rates were to fall later in 2026 and your lender passed on the reduction, refinancing could lead to larger potential savings.
Scenario | Before refinance | After refinance (same monthly payment) |
Loan amount | $700,000 | $700,000 |
Loan term | 30 years | 30 years |
Interest rate | 5.50% p.a.* (variable) | 5.04% p.a.* (variable) |
Monthly repayment | $3,974.52 | $3,775.00 |
Monthly saving | – | $199.52 |
Extra monthly repayment | – | $199.52 (voluntary, to match previous repayment) |
Total repayments | $1,430,827 | $1,358,956 |
Total interest paid | $730,827 | $658,956 |
Interest saved | – | $71,871 (approx.) |
Years to pay off | 30 years | 26 years 9 months |
Years saved | – | 3 years 3 months |
Borrowers are watching closely
While the cash rate is lower than its earlier peak, borrowing costs remain higher than they were before the inflation cycle began.
Lenders have also continued to make independent pricing changes, meaning the impact of any RBA decision can vary across the market.
Understanding how official rate settings flow through to your mortgage can provide a clearer picture of whether staying with your current lender or reviewing your options may make sense.
You might also be interested in: Which banks are passing on rate cuts
Banks may not pass on future RBA moves in full
Even if the RBA adjusts the cash rate later in 2026, there is no guarantee that all lenders will pass on the full amount.
In previous rate cycles, lenders have sometimes passed on only part of a cut, particularly when funding costs or margins change.
Rate adjustments may also be applied at different times or vary across loan types.
Here’s why that matters:
It’s worth checking how your lender responds after an RBA decision.
Comparing your rate with what’s available to new customers can be helpful.
If you’re not seeing the full benefit of a change, refinancing may be worth exploring.
Need help reviewing your home loan?
Even a small change in interest rates can affect repayments, but those changes aren’t always obvious.
Some lenders apply changes quickly for new borrowers, while updates to existing loans may take longer.
With lenders making independent pricing decisions throughout 2025 and into 2026, it can be difficult to know whether your current rate still stacks up.
An Aussie Broker can help you:
Understand what the RBA’s decision means for your loan.
Check whether your lender has passed on changes.
Compare a wide range of options so you can decide whether refinancing makes sense.
A quick check-in could help you make a more confident decision about your next move.