The Reserve Bank of Australia (RBA) is anticipated to hold interest rates steady at 4.35% in 2026 amid a slowing activity backdrop, despite elevated inflation risks, before beginning to cut rates from

mid-2027, National Australia Bank (ASX:NAB) said in a report on Friday.

The June NAB Business Survey showed business conditions below the long-run average and consistent with a slowing in activity growth. However, the survey also suggested that the impact of the Middle East had been less severe than anticipated, both in terms of activity and price pressures. Business confidence has mostly recovered from the initial shock from the Middle East conflict, and going forward, data centers will continue to drive business investment growth.

The lender continues to forecast a trimmed mean consumer price index (CPI) of 3.5% over 2026, before slowing to 2.6% over 2027 as imported pressures give way to softer domestic demand. It expects consumption growth of just 1.4% over 2026 and 2027. Growth is forecast to slow to 1.5% in 2026, from 2.5% over 2025, driven by higher interest rates, elevated inflation, and falling house prices. In that context, the unemployment rate is seen rising steadily to 4.8% late in 2027.

Employment growth is expected to slow looking forward, while the unemployment rate will rise a little further over coming quarters, ending the year at 4.6% and then rising gradually to around 4.75% by late 2027.

The ABS Monthly Household Spending Indicator rose 1.3% in May, reversing April's decline as fuel prices eased and refund effects faded. This resilience seems to have carried into June, with the

NAB Spend Trend rising 1.2%, with growth led by discretionary spending, in particular hotels as well as travel and transport.