The outlook for interest rates in 2026 remains uncertain, largely because inflation is proving slower to settle than many expected. While the trend has improved, the latest data suggests inflation is easing — not disappearing.
Inflation Is Cooling, Not Finished
Recent ABS figures show headline inflation declined from 3.8% to 3.4% in November 2025, marking the fifth consecutive month in the 3% range. This indicates progress, but not completion.
Earlier in 2025, inflation briefly dipped to 1.9% in June, raising hopes that the inflation fight was nearly over. In hindsight, that drop now appears to have been a temporary pause rather than a clear turning point. Inflation remains persistent, and that persistence is shaping how lenders and credit markets prepare for 2026.
What This Means for Interest Rates
When inflation behaves unpredictably, interest rate expectations become less stable. Markets, lenders, and borrowers must adjust to a wider range of possible outcomes rather than a single clear path.
In this environment:
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Interest rate movements become harder to forecast
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Fixed and variable pricing differences widen between lenders
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Credit teams place greater emphasis on buffers, servicing strength, and loan structure
Rather than simply pricing for today’s rates, lenders are preparing for multiple scenarios — including the possibility that rates stay higher for longer.
How Lenders Are Positioning
With inflation not fully under control, lenders are focusing more on risk management and borrower resilience. This includes:
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Assessing repayment buffers more conservatively
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Stress-testing loans against potential rate volatility
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Paying closer attention to income stability and cash flow
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Reviewing loan structures to ensure flexibility
In short, the focus is shifting from just approval to sustainability.
Borrowers Who Adapt Best
In uncertain rate environments, borrowers who plan ahead tend to perform better. Resilient borrowers typically:
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Review their loans well before fixed-rate expiry or refinancing pressure
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Use loan structures that can tolerate rate movement and market shifts
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Base repayment decisions on conservative, not optimistic, cash-flow assumptions
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Maintain buffers to absorb unexpected changes in rates or expenses
Preparation — not prediction — is the key advantage.
Looking Ahead to 2026
While inflation has clearly improved, it has not fully stabilised. This means the path for interest rates remains open, and lender behaviour will continue adjusting as new data emerges.
For borrowers, this creates both risk and opportunity. Uncertainty can bring volatility — but strong lender competition also means options remain available for those who position themselves early.
If you want clarity on how lenders are approaching 2026 and what structures may suit your situation, now is a good time to review your position and map your options.
Source: Australian Bureau of Statistics (2025, November). Consumer Price Index, Australia — All groups CPI, quarterly and annual movement (%).
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