Rates aren't going back.

By James Zhang · Wealth · Published 22 September 2026 · 16 min read

The short answer, before the detail

On Tuesday 29 September the Reserve Bank's Monetary Policy Board will almost certainly raise the cash rate to 4.60% — the fourth increase of 2026, from 3.60% in January. Markets put the odds of that at about 86%. All four major banks now forecast it. Nine months ago, almost nobody did.

That last sentence is the most useful thing in this article, so hold onto it. In December 2025, 19 of the 33 economists who gave Reuters an end-2026 number had the cash rate unchanged at 3.60% for the whole year. Ten expected cuts. Four expected a rise. The consensus was not merely wrong about the size of the move — it was wrong about the direction, and it was wrong by more than a full percentage point.

So treat what follows as a map of what is currently priced and currently argued, not a prophecy. The single most important fact in it is not the September meeting. It is the shape of the curve behind it: Australian money-market pricing is now essentially flat at just under 5% all the way out to 2029, and Commonwealth government bonds pay more at every maturity than the cash rate does today. The market is not pricing a return to a 3-handle cash rate at any point it can see. If that holds, the next five years are not a waiting game before rates "go back to normal". They are the new normal, and every investment decision you make between now and 2031 has to survive it.

Where rates are now, and how we got here

The cash rate is 4.35%. It has been there since 5 May 2026, when the Board voted eight to one to lift it by a quarter point from 4.10%. That was the third rise of the year, following moves in February and March. The Board then held in June and August.

The reason matters more than the sequence. Through 2025 the Bank had been cutting, and by December 2025 the cash rate was 3.60% with markets pricing further easing. Then inflation turned. In its May statement the Board said inflation had "picked up materially in the second half of 2025", pointed to capacity pressures in the economy, and singled out the Middle East conflict pushing fuel and commodity prices higher. Crucially, it noted "early signs that many firms experiencing cost pressures are looking to increase prices" and that short-term inflation expectations had risen.

That is the whole story of 2026 in one paragraph: a supply shock arrived in an economy that had no spare capacity to absorb it, and businesses started passing it on.

The probability of a rise this month

As at 21 September, market pricing implied an 86% chance of a 25 basis point rise at the 28–29 September meeting, with a 14% chance of a hold and nothing at all priced for a cut. The implied post-meeting cash rate was 4.57%, and the implied level by the December meeting was 4.60% — meaning the market expects one rise and then a pause. By 22 September some desks had that probability closer to 90%.

What makes this month interesting is not the number. It is how recently the number was completely different.

The July inflation figures, released on 26 August, showed headline inflation easing to 3.5% from 3.8% — but trimmed mean inflation, the measure the Board actually targets, stubbornly flat at 3.6%. In the fortnight after that release, market pricing for a September rise sat at 54% while 10 of 12 tracked economists still expected a hold. On 4 September, AMP put the money-market probability at 63% and called September versus November "50/50". As late as 9 September, ANZ, CBA and Westpac were all publicly expecting a hold in September with a rise in November.

Then, in the week of 15–22 September, the entire consensus moved. NAB and Deutsche Bank had already shifted to September. Goldman Sachs followed. On 21 September, CBA and ANZ both brought their calls forward — and ANZ went further, adding a second rise in November.

If you want one number to watch, it is the September-quarter trimmed mean, due in late October. CBA's Belinda Allen has flagged that a result of 1.0% or more for the quarter "could nevertheless put another increase on the table" — which is how CBA's 4.60% forecast turns into a 4.85% one.

What the experts are actually thinking

There are three separate things people call "the interest rate outlook", and conflating them is how readers end up confused. They are: what the RBA publishes, what markets price, and what individual forecasters predict. All three currently disagree.

What the four majors forecast

Sources: Broker Daily (22 September 2026); Canstar interest rate forecast page (21 September 2026); Newsquawk (18 September 2026); AMP Oliver's Insights (12 August 2026). ANZ's head of Australian economics Adam Boyton also warns the Board "will be slow and cautious when it comes to eventually cutting rates".

Note what nobody in that table does: publish a cash rate number for 2029, 2030 or 2031. That is not an oversight. No major Australian forecaster puts a figure five years out, because none of them believe such a figure would mean anything.

What the RBA itself publishes — and doesn't

The Reserve Bank does not forecast the cash rate. It never has. Its published forecasts are built on a technical assumption drawn from what markets are pricing, precisely so that a Board view does not get read as, in the words of a 2023 RBA speech, "a commitment or promise that isn't robust to changing circumstances".

The August 2026 Statement on Monetary Policy assumed a cash rate of 4.4% at end-2026, rising to 4.5% through 2027 and easing back to 4.4% by end-2028 — based on market pricing as at 5 August. The Bank's own forecasts under that assumption:

Source: RBA Statement on Monetary Policy, August 2026, Outlook chapter (11 August 2026). Four-quarter-ended changes; unemployment is the rate in that quarter. Note the forecasts stop at December 2028 — two and a half years out is as far as the Bank goes.

Two things stand out. First, that is a forecast of a slow grind rather than a crunch: inflation back inside the band by 2027 and at the midpoint around 2028, unemployment drifting to 4.8%, growth under 2% throughout. Second, the Bank's own communications on 11 August could not agree on when inflation reaches the 2–3% midpoint — the Overview chapter said 2028, the media release said "late 2027", and the Governor told her press conference "by the end of 2027". If the RBA cannot pin the date to within a year, treat anyone who can with suspicion.

The argument that actually matters: the neutral rate

Forget the meeting-by-meeting theatre. The question that determines the next five years is where the neutral cash rate sits — the level that neither stimulates nor restrains the economy. And the estimate has been moving up.

The August 2026 Statement on Monetary Policy put it plainly: "The cash rate is at the top of the range of model-based central estimates of neutral." In other words, on the RBA's own models, 4.35% is barely restrictive. Assistant Governor Christopher Kent said in March that the models most likely to capture the short-run neutral rate "have risen by around 20 to 30 basis points over recent quarters". CBA's reading of those same models has nominal neutral at roughly 3.7%, up from about 3.6% in February.

The structural case for a higher neutral rate is being made most clearly not by the RBA but by the banks. CBA's chief economist Luke Yeaman argues Australia faces "more intense competition for global capital than we have seen for decades", with the labour market "structurally tighter than it has been in decades" at 4.5% unemployment against a historical norm nearer 6%. His colleague Belinda Allen names the competitors for scarce capital directly: "data centres, housing, defence, and renewables are all on the agenda". Globally, Capital Group's fixed income team makes the same point about bond markets, arguing that "much of the recent move in 10-year real yields stems from the market reassessing the neutral rate rather than simply demanding more compensation for bond supply".

There is a credible dissent. Oxford Economics argues that while the unwinding of the global savings glut has genuinely pushed real yields up, "bond prices already reflect most of the decline in global excess savings" — that is, the higher-for-longer story is in the price, and duration is now cheap rather than dangerous. That disagreement is live and unresolved, and it is the real five-year debate.

The five-year map: three paths, and the honest uncertainty

Here is the chart that should change how you think about this. The RBA's published forecasts rest on an assumed cash rate that peaks at 4.5% in 2027 and drifts back to 4.4% by the end of 2028. Money markets are pricing something meaningfully higher and flatter.

The bond market says the same thing in a different language. Every Commonwealth government bond maturity now yields more than the cash rate, and the curve slopes upward the whole way out.

Three paths, weighted honestly

Nobody can hand you a five-year number. What can be done is to lay out the three worlds the evidence actually supports, and be clear about which one the market is currently paying for.

Sources: RBA Statement on Monetary Policy, August 2026 (technical assumptions, 11 August 2026); BlueGamma AUD forward curve (17 September 2026); CBA and ANZ published forecasts (21–22 September 2026); CBA's reading of RBA neutral-rate models (10 September 2026).

Then there is the record. Nine months ago the Reuters poll had the cash rate flat at 3.60% through 2026. AMP's Shane Oliver published a 2026 outlook saying rates would "hold at 3.6%" and that rises were "probably a 2027 story". In late March 2026 Westpac forecast a 4.85% peak reached via rises in May, June and August, and headline inflation peaking at 5.4% in the June quarter; the June and August rises never happened and headline inflation came in at 3.9%. Westpac was directionally right and specifically wrong, which is the normal outcome.

Use forecasts to understand the argument. Never size a position on the number.

Should you fix your rate?

Start with the fact that answers most of the question: fixed rates at the major banks are now higher than their advertised variable rates, and about 90% of the lowest rates on the market are variable ones. Thirteen lenders lifted fixed rates in September 2026 alone, Westpac by as much as 0.45 of a percentage point, NAB and ANZ by 0.20, and CBA again effective 22 September.

That shape is not an accident, and it is the mirror image of 2021. Back then the RBA's Term Funding Facility let lenders price fixed rates below variable, and borrowers responded: more than 45% of new mortgages were fixed between June and September 2021 against a long-run norm of 10–15%, and fixed loans reached almost 40% of all outstanding housing credit by early 2022. That cohort won, decisively. Today the configuration has flipped and so has behaviour — fewer than 5% of new and outstanding Australian mortgages are on fixed rates, and broker lodgement data shows the fixed share peaked at 5.4% in the March 2026 quarter before falling back to 3.8% in the June quarter.

Read that carefully, because there is a lesson in the timing. The fixed-rate spike happened before lenders repriced fixed rates upward. The borrowers who moved early got the cheap fixed rates. By the time fixing was obviously attractive, the window had shut. That is how fixed-rate windows always close.

The historical record, with numbers

Analysis of RBA three-year fixed mortgage rate data from 1990 to 2025 found that 65% of borrowers who fixed ended up worse off than if they had stayed variable — 71% if you strip out the COVID years. And the payoff is asymmetric: when fixing worked the average gain was 0.36% a year, and when it failed the average loss was 0.70% a year. That works out to an expected cost of roughly 0.23% a year for the privilege of certainty. The odds are about two-to-one against, and the downside is about twice the upside.

The obvious rejoinder is that averages are not decisions. There have been periods when fixing was clearly right — COVID, and 2005 to mid-2006 — and both had the same signature: fixed rates that were obviously below any sustainable level. That signature is not present today. Today's signature is the opposite.

The break-even, and what it takes for fixing to pay

Canstar ran the arithmetic in April 2026 on a $600,000 owner-occupier loan over 25 years, comparing the three cheapest fixed rates against the three cheapest variable rates:

Source: Canstar analysis reported by Australian Broker (28 April 2026). Rate levels have since risen; use the shape of the break-even, not the dollar figures. The principle holds: fixing pays only if the cash rate goes meaningfully higher than what is already priced.

The market has one rise priced. So fixing today is a bet that the RBA does at least two more than the market expects — roughly ANZ's or UBS's 4.85% peak, plus another. That is a real possibility. It is not the base case, and you are paying 30 to 100 basis points above variable for the option.

The mechanics nobody reads until it is too late

Sources: CBA Fixed Rate Home Loan guide (effective 14 March 2026); Westpac break cost and offset pages; NAB fixed versus variable and Rate Lock pages; ANZ Fixed Rate home loan page; rate lock fees for CBA via Canstar (26 March 2026). Rate locks typically run 90 days.

Three traps worth naming explicitly.

Break costs bite when rates fall, not when they rise. Westpac's own explanation is blunt: "Be careful with break costs as sometimes they can cost tens of thousands of dollars." ANZ says its early repayment costs "can be very large" and "can change from day to day". The mechanism is that the bank compares the wholesale rate for your remaining fixed term against the wholesale rate when you fixed, and charges you the difference if rates have dropped. Which means the dangerous scenario is precisely the one three of the four majors are forecasting: you fix at the peak in late 2026, the RBA cuts from August 2027, and the exit is expensive.

Fixing can reduce your borrowing capacity. APRA's serviceability buffer is three percentage points, unchanged as at 28 May 2026, and it is applied to your product rate. A borrower fixing at 7.14% is assessed at 10.14%; one on a 5.99% variable is assessed at 8.99%. Same borrower, same income, materially different approval. This follows directly from APRA's wording and is worth raising with your broker before you lock anything in.

"I'll just refinance at roll-off" is not a plan. Finder's 2026 Home Loan Report found that 54% of mortgage holders cannot switch to a better loan today, for reasons largely outside their control — equity, income, serviceability. Only 45% could refinance now. Meanwhile 55% are already spending more than 30% of take-home pay on repayments, with a mean of 38%.

What the major banks are advertising right now

These are advertised rates for new borrowers as at 22 September 2026. They are not what most existing customers are paying, and they are not what you will necessarily be offered. Every one carries conditions — a maximum loan-to-value ratio, an annual package fee, or an online-only application channel — and those conditions are where the comparison usually falls apart.

Owner-occupier, principal and interest

CBA fixed rates are Wealth Package rates ($395 annual fee, minimum $150,000 lending) from CBA's rate schedule effective 22 September 2026; its Standard Variable Rate at the same LVR is 6.34%. Westpac fixed rates are Premier Advantage Package rates at ≤70% LVR effective 18 September 2026; add 0.10% for 70–80% LVR and 0.20% again without the package. NAB's fixed rates are Tailored Fixed at ≤80% LVR, retrieved 22 September 2026; its Tailored Variable is quoted as a range from 6.09%, dependent on individual circumstances, not a flat advertised rate. ANZ fixed rates at ≤80% LVR via savings.com.au (17 September 2026); ANZ variable via Finder (22 September 2026), as ANZ's own rate tables do not render to a fetchable page.

Investor, principal and interest

CBA investor fixed are Wealth Package rates from its schedule effective 22 September 2026; Westpac investor fixed are Premier Advantage Package at ≤70% LVR; NAB investor fixed at ≤80% LVR. ANZ confirmed on 17 September that its increase applied to investor as well as owner-occupier fixed loans across one to five years but did not publish an investor table; the investor fixed rates still circulating on comparison sites are pre-increase and should not be relied on.

The gap between the cheapest rate on the market and the average is roughly 1.1 percentage points — about $6,600 a year on a $600,000 loan. That gap is larger than anything the RBA is likely to do in the next year, and unlike the RBA it is entirely within your control. If you are going to spend an afternoon on your interest rate, spend it there rather than on the forecast.

What a 5% world does to an investment case

This is where the rate outlook stops being macroeconomic trivia and starts deciding things. The mechanism is simple: every asset is priced against what cash and bonds pay. When the risk-free rate moves up a percentage point and stays there, everything else has to re-rate or stop making sense.

Residential property: the gearing arithmetic has broken

National dwelling values fell 0.9% in August and 3.1% over the quarter, leaving them 3.6% below the March 2026 peak. The annual figure of +2.7% hides a twenty-point spread: Sydney is down 4.6% over the year and 7.1% from its February peak, Melbourne down 4.7%, while Perth is up 15.6%, Darwin 14.6% and Brisbane 10.8%. The weakness is concentrated at the top end — upper-quartile Sydney and Melbourne houses are down about 10.5% from peak. Median time on market has stretched from 28 days to 39, vendor discounting is at 4.2% (the widest since January 2023), total listings are up 18.1% year on year, and the four-week auction clearance rate is 49.5%.

Meanwhile the gross national dwelling yield has risen to 3.8%, its highest since September 2019. Do not misread that as improving fundamentals. Rents are growing at 5.7% a year and vacancy is 1.6% nationally with every capital under 2% — genuinely tight — but the yield went up mostly because prices went down. That is yield expansion through capital loss.

Set 3.8% gross against an investor mortgage rate of 6.2% to 7.1% and the arithmetic is stark. A geared investor buying today at 80% LVR needs a gross yield of roughly 6.4% just to break even on cash flow. The national market delivers 3.8%. Sydney houses deliver 2.9% against an investor interest-only rate around 6.5% — a gap of some 3.6 percentage points before a single expense. You are not buying an income stream. You are buying a capital growth thesis and funding it out of your salary.

Shares: the discount rate is doing the work

The ASX 200 closed at 8,718 on 21 September, down 4.2% over the month and 1.1% over twelve months. Underneath that flat headline, FY26 sector returns show exactly what a rising discount rate does to different kinds of earnings:

Source: Motley Fool Australia, FY26 sector review (1 July 2025 to 30 June 2026). Note that not all of this is a rates story — health care's fall has its own causes, and utilities rose despite being conventionally described as rate-sensitive. Information technology at −37.2% is the cleanest illustration of what a higher discount rate does to earnings that sit a long way in the future.

The A-REIT number deserves a second look, because it is the same arithmetic as direct property with a daily price attached. Listed Australian property yields roughly 5–6%. The 10-year Commonwealth bond pays 5.27%. The spread for accepting property equity risk, leverage, vacancy and management is therefore somewhere between zero and seventy basis points. AMP's Shane Oliver put the general case bluntly in July: Australian and US share valuations have been "stretched offering little prospective risk premium over bonds".

So what does an investor actually do with this

Conclusion: be ready for every rate path

Nobody can predict where interest rates will go with any real confidence — not the banks, not the money markets and not the RBA itself. The wise approach is to be prepared for every scenario, whether rates end up low or high. And if they go high, you need the buffers already in place: cash sitting in an offset account, repayments you can still meet at a higher rate, and enough room to hold your assets without being forced to sell at the wrong time.

The five-year answer, as best as the evidence supports it: the cash rate most likely peaks between 4.60% and 4.85% within the next few months, holds there through most of 2027, and then falls slowly and not very far — toward something in the low fours rather than the low threes. Money markets are priced for almost no relief before 2030, the bond curve agrees with them, and the RBA's own models put today's 4.35% at the top of the range of neutral estimates rather than well above it. The era of borrowing at 2% is not coming back on any horizon a reasonable person should plan around.

But that is the forecast, and the forecast is worth what forecasts are worth. Nine months ago the consensus had this year flat at 3.60%. The most defensible position is not a view about 2031 — it is a portfolio and a loan that do not require one.

Which means the practical work is unglamorous and entirely within your control. Get your rate to within striking distance of the 5.79% that is actually available rather than the 6.90% average. Decide whether you are buying insurance or making a forecast before you fix anything, and price the insurance honestly. Rebuild every investment model at 6.5% flat for five years and see what survives. Treat 5.5% from a term deposit as the bar, not the fallback. And understand that the legislated changes to negative gearing and capital gains tax from 1 July 2027 will reshape Australian property investing far more than any single Board meeting.

Nobody gets Richer by being right about the cash rate. They get Richer by owning assets that still work when they are wrong about it.

Frequently asked questions

Sources

Every figure in this article carries the date it was published or retrieved. Interest rates and market pricing change daily; check current rates before acting on anything here.

1. Reserve Bank of Australia, Statement by the Monetary Policy Board: Monetary Policy Decision, 5 May 2026, and the decision of 11 August 2026.
2. Reserve Bank of Australia, Statement on Monetary Policy — August 2026, Outlook, 11 August 2026 (forecast table and cash rate technical assumption); Financial Conditions chapter (neutral rate).
3. Peter Tulip and Stephanie Wallace, Estimates of Uncertainty around the RBA's Forecasts, RBA Research Discussion Paper 2012-07, November 2012.
4. Marion Kohler, RBA, The Why, How and What of Forecasting, 3 May 2023; Christopher Kent, Reassessing Australian Financial Conditions, 26 March 2026.
5. Australian Bureau of Statistics, Consumer Price Index, Australia, July 2026, released 26 August 2026; Labour Force, Australia, July 2026, released 20 August 2026.
6. centralbank.watch market-implied RBA probabilities, 21 September 2026; BlueGamma AUD forward curve, 17 September 2026; Trading Economics Australian government bond yields, 22 September 2026.
7. Canstar interest rate forecast, updated 21 September 2026; Canstar on September fixed rate rises, 18 September 2026; Broker Daily, banks recast rate hike forecasts, 22 September 2026.
8. Commonwealth Bank, The CommBank View: Higher rates, harder choices and Cyclical slowdown, structural limits, 10 September 2026.
9. AMP, Dr Shane Oliver, Australian home price downturn, 1 September 2026, and RBA holds but hawkish, 12 August 2026.
10. Reuters poll of 38 economists, 5 December 2025 (end-2026 cash rate expectations); Westpac revised forecasts, 31 March 2026.
11. Cotality, Home Value Index and Monthly Housing Chart Pack, index results to 31 August 2026.
12. Reserve Bank of Australia, Fixed-rate Housing Loans, RBA Bulletin, March 2023; AFG Mortgage Index, Q4 FY26, 17 July 2026.
13. Prosolution Private Clients, analysis of RBA three-year fixed mortgage rate data 1990–2025, 2 December 2025; Canstar fix-versus-float modelling reported by Australian Broker, 28 April 2026.
14. APRA, APRA maintains current macroprudential policy settings, 28 May 2026; Canstar borrowing capacity analysis, 2 May 2026.
15. Australian Taxation Office, Reforming negative gearing and capital gains tax, page updated 29 June 2026.
16. Finder, 2026 Home Loan Report, published 20 August 2026 (n=1,010 Australian adults including 291 mortgage holders).

Keep reading