Struggling Aussies hit with another rates blow

The chance of at least one interest rate cut next year is unlikely, according to a new report from one of the world’s leading credit rating agencies.

Rising inflation forced the Reserve Bank of Australia (RBA) to come down hard, increasing the cash rate to 4.6 per cent, the highest it has been in 15 years.

Combined with cost of living pressures caused by the continuing Middle East war and its impact on supply chains, the rate rises have caused serious hip pocket pain to millions of Aussies, though many of the major banks have been predicting rates could finally fall in the middle of next year, as inflation begins to trend down towards the RBA’s target level of 2-3 per cent; currently it sits closer to four per cent.

However, a report released by Fitch Ratings has warned that as well as potential increases to interest rates to end the year, there may not be quick relief in 2027.

“Our baseline is this rate will be maintained throughout 2027 to balance demand and constrained supply, with further increases possible,” the report released on Friday said.

“Inflation… is likely to ease within the RBA's two per cent to three per cent target band in 2027 and reach the midpoint in 2028.”

Commonwealth Bank and Westpac say they expect the first interest rate cuts to come in August next year, while ANZ believes interest rates could fall to 3.85 per cent at the end of the year.

While the news from Fitch’s report will be a bitter blow to mortgage holders, the report stresses Australia’s economy is relatively healthy, retaining its triple A credit rating.

This means Australia will have lower borrowing costs, and has a lower risk of defaulting, or failing to pay back investors.

Fitch said, “effective policymaking” for three decades meant the country was better insulated from global economic shocks like what was seen during the COVID-19 pandemic, as well as right now.

“Australia’s ‘AAA’ rating is underpinned by the high quality of institutions, a wealthy and high value-added economy, the Australian dollar’s reserve currency status and a respectable outlook for economic growth,” the agency said in regard to giving Australia the strong rating.

It also highlighted that Australia’s GDP is expected to grow by 2.1 per cent in 2026, which is slightly less than the 2.3 per cent that was seen in the first half of the fiscal year.

This eases some pressure on inflation, while Fitch said it expects Australia’s government deficit to fall as well.