Are Australia’s fixed-rate cuts about to end?

After years of rising interest rates, the Reserve Bank of Australia (RBA) has shifted to a cautious easing cycle. As of September 2025, the cash rate sits at 3.60% – the first cuts in more than four years – offering relief to millions of variable-rate mortgage holders.

But while variable rates are closely tied to the RBA, fixed-rate loans can follow a different path. The current spate of falling fixed rates may be coming to an end, or at least stabilising, even before the RBA finishes its easing cycle. This divergence is rooted in the distinct mechanics of fixed-rate funding and the strategic priorities of banks.

The forecast: what’s next for rates?

Economists broadly agree that the RBA will continue cutting, but differ on the extent. Big Four banks CBA and ANZ see a modest 25 basis point cut to 3.35% by the end of 2025, while NAB expects 3.10% by February 2026, and Westpac predicts 2.85% by May 2026.

The RBA attempts to balance inflation and employment. Underlying inflation for the year to June 2025 fell to 2.7%, comfortably within target, while GDP growth forecasts have been downgraded to 1.7% and unemployment has edged up to 4.3%. With the economy needing stimulus but showing signs of slowing, the next rate moves are likely to be smaller, gradual, and data-driven.

Why fixed rates don’t always follow the RBA

Unlike variable rates, fixed rates don’t necessarily move in step with the cash rate. Banks fund fixed-rate loans through a mix of deposits and wholesale debt, with costs influenced by global markets, investor confidence, and risk perceptions.

The recent fall in fixed rates has been helped by a rare alignment: RBA cuts coinciding with falling wholesale funding costs. This created an incentive for banks to offer attractive fixed rates to win new customers and refinancers. But this alignment is fragile. Rising global funding costs or perceived risks could halt or reverse the decline, even if the RBA keeps cutting.

Competition also plays a role. Non-bank lenders and non-ADIs are increasingly aggressive, using speed, technology, and strategic offers, like cashbacks, to win business. Once funding costs stabilise, banks will have less incentive to continue cutting rates.

Lessons from recent history

Past monetary policy cycles show that fixed-rate loans can diverge sharply from RBA cuts:

• COVID-19 (2020-22): RBA’s Term Funding Facility (TFF) allowed record-low fixed rates, well below variable rates.
• Post-GFC (2008-10): Global funding markets seized up, and banks slowed rate cuts despite aggressive RBA easing.
• Gradual glide (2011-16): RBA cut the cash rate from 4.75% to 1.50%, but banks raised fixed rates out-of-cycle to protect margins.

History suggests that in prolonged, cautious easing cycles, banks prioritise funding costs and profitability over matching every RBA cut – a pattern that seems likely to repeat now.

Where to from here?

The early wave of fixed-rate cuts has likely peaked. As the RBA nears the end of its cash rate easing cycle, banks may anticipate stabilising rates and adjust fixed offerings accordingly.

Mozo banking expert Peter Marshall says, “Some analysts suggest that there might only be one or two more cuts from the RBA in the current cycle. Cuts to fixed rates during August were fewer and smaller than we’ve seen for the previous few months. If the outlook for the economy stays the same we may not see fixed rates fall much further than they are now.”

Actionable insights for borrowers

• Consider a split loan. Lock in certainty with a fixed portion while keeping a variable component to benefit from further RBA cuts.
• Use an offset account. Reduce interest payments and save thousands over the life of your loan. Mozo’s 2024 Home Loans Report found more than half (54%) of owner-occupiers on a variable rate already do.
• Shop around. With lenders offering aggressive fixed rates and cashback to attract business, comparing products is essential. Mortgage brokers can give access to competitive non-major bank loans not widely advertised.

The fixed-rate market may no longer be a straight line down. For borrowers, this could be a valuable opportunity to balance certainty, flexibility, and strategy before the next shift in rates.

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