ANZ scraps rate cut prediction and warns of prolonged pain for borrowers

ANZ has become the latest big four bank to frustrate mortgage holders, predicting the Reserve Bank of Australia will hold the official cash rate.

In its latest economic note, the major bank now forecasts the official cash rate will remain at 3.60 per cent for an “extended period”.

ANZ’s head of Australian economics Adam Boyton said the two mandates for the RBA – price stability and full employment – are pulling in opposite directions, meaning the central bank will hold rates.

“We no longer see one final rate cut from the RBA in the first half of 2026, given recent

inflation pressures,” Mr Boyton wrote in an economic note.

“With growth around potential, the activity case for further easing is also less clear.”

The RBA has repeatedly stated it will be data dependent when it comes to interest rate moves.

The central bank has held interest rates over the last quarter citing they want to see inflation trend towards the midpoint of 2 to 3 per cent, while pointing out unemployment is a “little tight.”

Annual inflation jumped to 3.8 per cent in October, up from 3.6 per cent, while the trimmed mean inflation rate – which strips out volatile items- also rose to 3.3 per cent over the year.

Despite inflation heading in the wrong direction, ANZ forecasts the increase in cost of living will be temporary.

According to the major bank the labour market is actually closer to “balanced” since lifting throughout the year to 4.3 per cent in October.

But in welcome news for cash strapped mortgage holders the bank does not believe interest rates will rise as the surprising jump in inflation over the last quarter is unlikely to be permanent.

“At the same time, the rise in the unemployment rate this year and conflicting signals across leading indicators of demand make it difficult to see a case for a 2026 rate hike,” Mr Boyton wrote.

“That leaves us forecasting the RBA to be on an extended hold with the cash rate at 3.60 per cent – a rate relatively close to neutral, with a labour market that is, in our view, close to balanced and GDP growth around potential.”

HSBC chief economist Paul Bloxham also expects the central bank to hold interest rates in 2026 before lifting them in 2027.

“ With growth in an upswing, the economy already operating at, or a bit beyond its capacity, the unemployment rate below the full employment level, core inflation having risen back to the top edge of the RBA’s target band and the housing market in an upswing, we find it hard to see an argument for further rate cuts,” he wrote.