Rate hike or cut? How borrowers will win and lose in RBA’s inflation tussle

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

With two weeks to go until the Reserve Bank’s first meeting for 2026, Aussie mortgage holders still are wading through a mixed signals on what the trajectory for home loan repayments will look like this year.

Recent moves by major banks to lift their fixed mortgage rates signal lenders are anticipating several hikes by the RBA. If this plays out, variable borrowers potentially face paying hundreds more on mortgage repayments every month.

However, the jury is still out on whether borrowers will see their repayments rise in the coming months, with a dip in inflation earlier this month acting as welcome news for households, with trimmed mean inflation easing to 3.2% in the 12 months to November.

Trimmed mean is calculated by "trimming" away the most volatile items Consumer Price Index considers, those 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’s welcome cooling which seems to lock in a rate hold rather than a rate hike for next month, despite the nation's largest lenders sending out a different message. 

The RBA board's first meeting of the year is just two weeks away. Picture: Getty

---

With fixed rates beginning to creep back up, households are already bracing for another squeeze on their finances before the RBA has even made its call.

Fixed rates on the rise

Commonwealth Bank has hiked its three-year fixed rate up a sizeable 0.70 percentage points, a jump equivalent to more than two rate hikes.

It comes after Macquarie Bank also increased rates by 0.25% across all its fixed loan offerings.

The number of lenders offering fixed rates below 5% has dropped noticeably in the last month though consumers have been soaking up the holiday season and splashing the cash.

Commonwealth Bank is increasing its fixed rate terms. Picture: Getty

---

Rising fixed rates signal banks are preparing for higher funding costs. 

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

If the RBA does hike rates in two weeks in a bid to counteract Christmas and New Year spending, there will likely be more for variable rate holders to pay as lenders pass this on to customers.

Assuming a starting rate of 5.76%, Mortgage Choice has calculated the extra amount borrowers with various mortgage levels would need to pay from next month:

Borrowers may be spared a rate hike for now however, largely thanks to the Reserve Bank’s caution as it deals with interpreting new data sets for monitoring inflation.

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

Governor Michele Bullock has said the bank will need time to adjust to the data however, which could buy borrowers some time.

While Ms Bullock has said rate cuts are off the table for now, more inflation cooling as the year gets underway could see fortunes reverse later in the year.

Were rates to be cut, borrowers could have some great savings on their hands:

It comes as employment growth saw a decline in the month, continuing its slowing pattern from the rest of 2025.

Deloitte Access Economics partner Stephen Smith says the recent softness makes it unlikely real wages will lift.

“The RBA will stay on hold in February,” he predicts. “Though data to be released later in January – particularly the labour market and December inflation prints – will be important pieces of the puzzle.”

Both Commonwealth Bank and National Australia Bank have forecast rate rise for February – a prediction that remains unchanged since the most recent inflation data.

Westpac and ANZ have not factored in any change to the cash rate for the foreseeable future, while the Australian Stock Exchange shows markets are pricing in a mere 22% chance of a hike.

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

This article first appeared on Mortgage Choice and has been republished with permission.