Cash rate forecasted to drop to 3.1% by early 2026
The Reserve Bank of Australia (RBA) will cut the cash rate four more times, bringing it to 3.1% by February 2026, according to National Australia Bank (NAB) chief economist Alan Oster.
Speaking on the NAB Broker podcast, Oster outlined his forecast, citing inflation trends as a key factor.
“Based on what we’re seeing in terms of inflation, we would expect them to cut again in May, August, and then maybe November,” he said. “We expect another one early next year as well because we think you should have a cash rate back towards neutral, somewhere around 3%.”
His comments follow the RBA’s recent decision to lower the official cash rate by 25 basis points. Oster described the move as a “hawkish cut.”
“Their main message also was we’re going to cut now, but we’re not in a great hurry, so don’t expect two or three in a row,” he said. “I think it will take a while for them to sit back and look at the data.”
Other major banks have earlier released their cash rate forecasts. Commonwealth Bank expects three more cuts this year, bringing the rate to 3.35%. Westpac has a similar outlook, also predicting a drop to 3.35%. ANZ anticipates just one more cut, which would lower the rate to 3.85%.
NAB’s latest prediction comes as the January Consumer Price Index (CPI) recorded a 2.5% annual increase, matching December’s inflation rate.
“The consistent downward trend in the figures support market expectations of further rate cuts during 2025 which would provide additional relief for borrowers following the cut this month,” said Leanne Pilkington, president of the Real Estate Institute of Australia (REIA).
However, Sally Tindall, Canstar’s data insights director, cautioned that a recent rise in core inflation — excluding volatile items like food and energy — complicates the outlook.
“Core inflation is now heading in the wrong direction, according to the ABS monthly dataset,” Tindall said. “While this is not cause for panic, it pours at least a bit of cold water on the prospect of further cash rate cuts in the near future.”
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