ANZ suggests it is the end of the easing cycle

Further, he said that the case for further easing is also “less clear”.

“The move higher in the unemployment rate this year and our view that the labour market is ‘balanced’ rather than tight also make it hard to see a rate hike in 2026. And we don’t expect Q3’s lift in inflation to be permanent,” he said.

“As a result, we expect the RBA to be on an extended hold, with the cash rate to remain at its current level of 3.60 per cent.”

The cash rate forecast of the bank has been continually changing as economic conditions change

At the start of this year, Westpac expected the RBA to cut rates by 25 basis points (bps) twice, with the cash rate ending the cycle at 3.85 per cent.

Following the US tariff announcements in April, it then added two more rate cuts to its forecast, with the easing cycle ending at a ‘terminal’ cash rate of 3.35 per cent.

However, it is now removing the final 25-bp cut it had forecast for mid-2026 and stated that instead, the RBA would “remain at 3.60 per cent for an extended period”.

Indeed, it suggests that the next cash rate movement could be up or down.

“We think the lift in trimmed mean inflation in Q3 is likely temporary, but signs of ongoing inflation pressures in the (new) monthly CPI, GDP growth running around the RBA’s estimate of potential and the RBA’s view that the labour market is tight all suggest the RBA’s Board is likely to be cautious about further easing. 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,” Boyton said.

“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. That’s an unusual end for an easing cycle.

“Typically, easing cycles end with the cash rate at a stimulatory level and some slack still in the economy. That in turn enables a period of above potential growth which eventually needs to be tempered by higher rates.

“As for the next move in rates, we can construct scenarios where it could go up or down.”

According to Boyton, an increase could come about if the RBA believes that the economy is operating above potential (if trimmed mean inflation is persistently above the target combined with a stable unemployment).

“This would potentially be a shift in policy for a central bank that has been keen to preserve post-pandemic gains in the labour market,” he said.

However, Boyton added that no further rate cuts and an easing in the labour market may result in softer real income growth, dampening consumer sentiment and household spending, with feedback loops into business conditions and GDP growth.

“Such a scenario might see the board, once confident that inflation is likely to run near the mid-point of the target, decide the economy could afford to grow a little faster. That could particularly be the case if softness in the global economy had other central banks easing through 2026,” he said.

ANZ has joined National Australia Bank (NAB) and the Commonwealth Bank of Australia (CBA) in curbing the depth of the easing cycle, with both major banks having recently adjusted their rate forecasts.

NAB moved last month to state it was likely the end of this easing cycle, while CBA changed its cash rate outlook in October, after quarterly inflation came in higher than expected, to state it was the end of the rate-easing cycle.

Westpac continues to forecast the cash rate to be taken down from 3.6 per cent to 3.35 per cent by June of next year, followed by another cut in September 2026, taking the terminal cash rate to 3.1 per cent.

[Related: Another major bank rules out more rate cuts]