Rate cut stays on wishlist as Christmas bonus off table

Borrowers are being warned that interest rate cuts are unlikely for much of 2026 as the Federal Reserve meets for its final monthly meeting of the year.

Homeowners are unlikely to get financial help on their mortgages before Christmas, with the central bank forecast to keep the official cash rate at 3.6 per cent following its meeting on Tuesday.

After three reductions throughout 2025, cash interest rates are expected to remain stable for most of 2026, with the possibility of a rate hike even remaining up in the air.

The recent rise in inflation has dashed hopes for further rate cuts; Latest data shows an increase from 3.6 percent to 3.8 percent, well above the Central Bank’s target range of two to three percent.

Adjusted average inflation, which eliminates volatile price movements and is the central bank’s preferred measure, stood at 3.3 percent in the 12 months to October.

Westpac Group chief economist Luci Ellis said the central bank and governor Michele Bullock were likely to take a cautious approach to tackling inflation.

“The RBA recognizes that some of the recent rises in inflation are temporary but will be cautious given its views on potential output growth,” he said.

“So it will definitely remain on hold this month and most of next year.”

Ms Ellis said there was the potential for two rate cuts in 2026, with Westpac tentatively predicting May and August as possible cut times.

“Given the RBA’s beliefs about potential output, this will not be its expectation,” he said.

“It may therefore seek to further reduce expectations for future cuts.”

The end of energy bill mitigation measures was cited as one of the reasons for the rise in inflation.

Finance Minister Jim Chalmers said federal cuts will not be extended until the end of 2025.

“We’ve encouraged people not to view these as a permanent feature of the budget,” he told reporters on Monday.