RBA Statement on Monetary Policy 2026: Headline + Forecast Tables

Introduction

The Reserve Bank of Australia’s February 2026 Statement on Monetary Policy (SMP) projects that trimmed mean inflation will ease to 2.5 per cent by December 2026, within the Bank’s 2–3 per cent target band, while the cash rate is assumed to decline from 3.85 per cent to 3.35 per cent over the same period, based on market pricing. For Australian mortgage borrowers, this trajectory indicates a modest further reduction in variable-rate servicing costs, though borrowing capacity remains constrained by the Australian Prudential Regulation Authority’s (APRA) unchanged serviceability buffer of 3 percentage points above the product rate. This article distils the SMP’s headline forecasts, the central economic scenario, and the direct consequences for the mortgage market.

Headline Forecasts and Key Messages

The February 2026 SMP’s immediate message is that the disinflation process is well advanced but not yet fully secured. The trimmed mean consumer price index (CPI) rose 3.1 per cent over the year to the December 2025 quarter, according to the Australian Bureau of Statistics (ABS) (ABS CPI, December 2025). The RBA’s central forecast sees this measure declining to 2.8 per cent by June 2026 and 2.5 per cent by December 2026, before settling at 2.4 per cent through 2027. Headline CPI, influenced by one-off electricity rebates and fuel price movements, is forecast to fall to 2.3 per cent by end‑2026.

Gross domestic product (GDP) growth is projected to strengthen from a low of 1.8 per cent year‑ended December 2025 to 2.0 per cent by mid‑2026 and 2.3 per cent by late 2026, supported by recovering real household disposable incomes and a gradual lift in business investment. The unemployment rate is anticipated to rise marginally from the December 2025 reading of 4.2 per cent to 4.3 per cent in June 2026 and 4.4 per cent by December 2026, as labour supply growth outpaces employment creation. The RBA notes that wages growth, measured by the wage price index, remains solid at 3.7 per cent year‑ended December 2025, providing underlying support to household spending.

The cash rate assumption within the SMP is a technical input, not a policy commitment. The RBA derives this path from the overnight indexed swap (OIS) market curve at the time of the Board’s forecast round. The February 2026 assumption begins at the actual cash rate target of 3.85 per cent and implies a 50‑basis‑point reduction over the remainder of 2026, reaching 3.35 per cent by December 2026. The Bank’s staff highlight that this path is consistent with the gradual easing of monetary restraint as inflation returns to target, but that the actual cash rate decisions will depend on the flow of data.

Central Scenario Forecast Table and Economic Outlook

The following table reproduces the RBA’s key central scenario forecasts from the February 2026 SMP (RBA SMP February 2026, Table 1). All year‑ended figures are expressed in per cent.

Within this central scenario, household consumption growth is forecast to rise from 1.3 per cent year‑ended December 2025 to 2.1 per cent by December 2026. Dwelling investment, however, is expected to contract by 1.5 per cent through 2026 as elevated construction costs and higher financing rates continue to weigh on new residential approvals. Occupancy demand remains strong, underpinned by net overseas migration of 340,000 in 2025–26, according to the Australian Government’s 2025‑26 Budget forecasts. The resulting tight rental market continues to place upward pressure on rents, which the ABS measured rising 6.2 per cent over the year to December 2025. This dynamic partly offsets the disinflationary impulse from goods prices, keeping services inflation elevated at 4.0 per cent in the December 2025 quarter.

Cash Rate Assumption and the Mortgage Market

The RBA’s cash rate path directly influences mortgage pricing. As of February 2026, the average standard variable owner‑occupier rate on new loans had fallen to 5.85 per cent, down from 6.25 per cent in June 2025, according to the RBA’s indicator lending rates. Lenders have passed through 40 basis points of the 50‑basis‑point reduction in the cash rate since late 2025, with the remaining margin compression reflecting ongoing competition for low‑risk borrowers. If the assumed cash rate decline to 3.35 per cent materialises by December 2026, the average variable rate is likely to fall further to around 5.35 per cent.

Serviceability assessments remain the binding constraint for many mortgage applicants. APRA’s prudential standard APS 110 requires lenders to assess a borrower’s capacity to repay at an interest rate that is at least 3 percentage points above the loan product rate. At the current average new variable rate of 5.85 per cent, the assessed rate is 8.85 per cent. Should the cash rate follow the SMP’s assumed path, the assessed rate would decline to approximately 8.35 per cent by year‑end, all else equal.

A reduction in the assessed rate from 8.85 per cent to 8.35 per cent lifts maximum loan size by roughly 5.4 per cent for a given income, assuming a 30‑year principal‑and‑interest repayment structure and the absence of other debts. For a household with gross annual income of $150,000, this translates into an increase in maximum borrowing capacity from approximately $565,000 to $595,000, illustrating the direct channel through which monetary policy easing expands credit availability. However, the actual improvement in borrowing power is moderated by stable credit underwriting standards and the unchanged 3‑percentage‑point buffer. APRA’s latest quarterly property exposure data, published in the December 2025 APRA Quarterly ADI Property Exposures, show that new interest‑only lending remains at 15 per cent of total new housing loans, while loans with a debt‑to‑income (DTI) ratio greater than 6 has fallen to 8.7 per cent of new flows, reflecting ongoing lender caution.

The interaction between falling assessed rates and APRA’s macroprudential limits – including the largely non‑binding 10 per cent investor loan growth benchmark and the informal DTI guardrails – means that the RBA’s gradual rate path translates into a cautious rather than aggressive credit impulse. Housing credit growth is forecast to remain modest at 4.5 per cent annualised through 2026, only slightly above the 4.2 per cent recorded in December 2025.

Sensitivity, Risks, and APRA’s Outlook

The SMP explicitly identifies several risks that could alter the forecast trajectory and, consequently, borrowing conditions. On the upside for inflation, a tighter‑than‑anticipated labour market could sustain nominal wage growth above 3.5 per cent, preventing services inflation from falling as quickly as projected. On the downside, a sharper than expected retrenchment in household consumption – perhaps triggered by a renewed decline in housing equity or a rise in precautionary saving – could push GDP growth below 2.0 per cent and force the RBA to accelerate cash rate cuts. The Bank’s sensitivity analysis shows that if the unemployment rate were to rise to 5.0 per cent by mid‑2026, the cash rate might need to decline to 2.85 per cent to achieve the same inflation trajectory, a scenario that would markedly reprice mortgage rates.

APRA’s supervisory stance remains unchanged. The 3‑percentage‑point serviceability buffer is not under active review, according to the Council of Financial Regulators’ quarterly statement. APRA’s stress‑testing framework assumes a severe but plausible adverse scenario where the cash rate is cut to 1.0 per cent but unemployment spikes to 8.5 per cent. While remote, this scenario underscores that the current buffer is designed to protect against borrower distress in a downturn, not to calibrate day‑to‑day access to credit.

For mortgage borrowers, the primary takeaway is that the RBA’s February 2026 SMP paints a picture of gradual normalisation: inflation returning to target over the next 12–18 months, the cash rate declining in measured steps, and borrowing capacity expanding modestly. However, the forecasts are highly conditional. Any deviation in inflation or labour market data can change the rate path quickly. Borrowers should therefore track the RBA’s quarterly SMP updates and APRA’s lending indicators, which provide the most authoritative early signals of changes to credit availability. The next SMP is scheduled for May 2026, with the RBA releasing updated forecasts alongside its May cash rate decision.

Summary and Borrowing Implications

The February 2026 RBA SMP sets out a central scenario where trimmed mean inflation falls to 2.5 per cent by December 2026, GDP growth reaches 2.3 per cent, and the cash rate is assumed to decline from 3.85 per cent to 3.35 per cent over the year. For variable‑rate mortgage holders, this implies a potential further reduction of 50 basis points in average variable rates, bringing the typical new loan rate to around 5.35 per cent by year‑end. Serviceability assessed rates would correspondingly decline from 8.85 per cent to 8.35 per cent, lifting maximum borrowing capacity by approximately 5.4 per cent for a given income. Fixed‑rate trajectories and bank funding costs will add a layer of idiosyncratic variation around these central figures.

Risks to the outlook are twofold: sticky services inflation could keep rates higher for longer, while a sudden consumption pull‑back could precipitate deeper cuts. APRA’s unwavering serviceability floor ensures that any easing in monetary policy will translate into credit expansion only gradually, preventing a repeat of the loose lending conditions seen in earlier cycles. The RBA’s forecasts should be read as part of a broader mosaic of data, including the monthly ABS CPI indicator, the ANZ‑Roy Morgan consumer confidence index, and APRA’s quarterly ADI property exposures. Together, these sources provide a comprehensive view of the borrowing environment.

Information only, not personal financial advice. Consult a licensed mortgage broker.