Blow to households as major bank scraps RBA rate cut call

ANZ has become the latest bank to scrap forecasts for a rate cut next year as hotter-than-expected inflation dampens hopes for households squeezed by the peak spending season.    

ANZ joins CBA and NAB in predicting the RBA will remain on an “extended pause” throughout 2026.

“We no longer see one final rate cut from the RBA in the first half of 2026, given recent inflation pressures,” ANZ head of Australian economics Adam Boyton said in a note on Tuesday.

But the bank does not expect a rate hike anytime soon due to recent signs of a weakening jobs market.

“As a result, we expect the RBA to be on an extended hold, with the cash rate to remain at its current level of 3.6%,” he said.

Inflation data released last week showed a further jump in the annual inflation rate, which now sits well above the RBA’s 2-3% target range. The Consumer Price Index rose 3.8% over the year to October, even hotter than September’s shock 3.6% inflation figure.

The RBA’s preferred measure of inflation, the trimmed mean (which strips out a lot of one-off and volatile price movements) also sits above the RBA’s target, reaching an annual rate of 3.3% in October.

That now leaves Westpac as the only major bank tipping rate cuts next year, with chief economist Luci Ellis – who was the assistant governor of economics at the RBA for almost seven years – holding firm on predictions for two rate cuts, likely in May and August. The three rate cuts this year have already fuelled momentum across the housing market, with home prices rising for 11 consecutive months and record levels of search activity on realestate.com.au.

Mortgage Choice figures show household borrowing power has been boosted by tens of thousands of dollars since the first rate cut in February.

All things being equal, a family able to borrow the average loan size of $661,000 at the start of 2025 would see that rise to $716,657 following three 0.25% rate cuts, an improvement of more than $55,000. This assumes a starting interest rate of 6.29% and that the lender passes on each rate cut in full.

Loan submissions data from Mortgage Choice shows the average home loan size has jumped 8.4% in the past year as borrowers stretch themselves to get into the rising property market. Commenting on the data, Mortgage Choice chief executive Anthony Waldron said it’s the highest value on record.

“Over the September quarter, we saw a rise in average loan sizes across every region, bringing the national average loan size to more than $660,000,” Mr Waldron said.

“And the results from our latest consumer survey point to this strong activity continuing into summer.”

It comes as ABS data revealed the total value of Australia’s residential housing market rose by $317 billion in the September quarter to an eye-watering $11.9 trillion. Since then, PropTrack data shows home prices have continued to rise, reaching new record highs across the country in November.

But with housing affordability sitting near its worst level on record, REA Group senior economist Eleanor Creagh noted stretched affordability would likely keep a lid on the pace of home price growth next year.

“Monthly growth eased across the capitals from October’s stronger pace, and with interest rates now expected to remain on hold for an extended period, affordability constraints are likely to see price growth moderate throughout 2026,” she said.

“National annual growth is a little above the past decade’s average, not a re-run of the 20–30% surges of earlier booms.”