The Federal Reserve Bank of Australia's 2026 rate cut path has emerged: economists predict three interest rate cuts to 3.1%, and the pace of easing prudently lags behind global peers

The Zhitong Finance App learned that economists' latest predictions show that the Bank of Australia may complete three interest rate cuts in early 2026. Previously, the bank had implemented two rounds of interest rate cuts, and the current policy path is basically consistent with money market pricing.

According to the survey results released on Wednesday, in the median forecast of 40 economists, the Bank of Australia is expected to cut the cash interest rate from the current 3.85% to 3.1% in the first quarter of 2026, then enter the policy observation period. Although the Bank of Australia's easing pace is in sync with the central banks of the United Kingdom, Canada, New Zealand, etc., the overall pace of action is relatively more cautious.

The Federal Reserve has yet to start cutting interest rates. At the monetary policy meeting in December 2024, the Federal Reserve lowered the federal funds rate target range by 25 basis points to 4.25%-4.5%. After entering 2025, the need to cut interest rates decreased due to strong economic growth and inflationary pressure. Meanwhile, Bloomberg Economic Research predicts in its global monetary outlook that most of the world's 23 major central banks will continue to cut interest rates moderately in the next few months.

This poll was conducted after the Federal Reserve unexpectedly kept interest rates unchanged this month. This decision contrasts with the market's previous expectations of interest rate cuts. According to the minutes of the Monetary Policy Committee meeting released on Tuesday, decision makers believe that implementing a third rate cut in four policy evaluations would conflict with their “prudent and gradual” easing policy principles.

Lucy Ellis, chief economist at Westpac Bank, pointed out that the Reserve Bank of Australia has always preferred to adjust interest rates simultaneously at the point where quarterly macroeconomic forecast updates are released, so the July interest rate cut “is more like the result of forced market pricing.” The former assistant governor of the Federal Reserve Bank of Australia analyzed that combined with the latest labor market data, the possibility of interest rate cuts in August was higher than expected after the July meeting.

According to economic data released recently, Australia's unemployment rate unexpectedly rose to a four-year high of 4.3% in June, mainly affected by the almost stagnation of recruitment activities, but the annualized employment growth rate remained at 2%. This is basically in line with the Australian Federal Reserve's previous forecast.

This data characteristic has caused the market to divide the pace of subsequent easing: some institutions believe that the interest rate cut cycle will slow down. For example, Bank of America analyst Nick Steiner, who accurately predicted the suspension of interest rate cuts in July, and Grant Fung of Pioneer Investments Australia Ltd., expected that the Reserve Bank of Australia will only cut interest rates twice more in the future.

Mr. Fung pointed out, “The deflation process in Australia is expected to be slow, so the central bank will remain highly cautious about interest rate adjustments, and the pace of interest rate cuts is expected to be gradual throughout the year.”