Australian Banks CBA and Westpac Hike Fixed Interest Rates Amid Inflation Concerns

Major Banks Adjust Fixed Rates Upwards

Australia's two largest financial institutions, Commonwealth Bank (CBA) and Westpac, have announced increases to their fixed interest rates, effective Wednesday, February 25, 2026. This marks a significant adjustment in the Australian mortgage market, with CBA lifting its fixed rates by up to 0.25 percentage points and Westpac increasing selected terms by as much as 0.30 percentage points.

For CBA, this is the second fixed rate hike in six weeks, resulting in all of its sharpest fixed offers for owner-occupiers paying principal and interest now sitting in the 6% range. Following these changes, CBA's lowest one-, two-, and three-year fixed rates are now 6.19%, 6.04%, and 6.29% respectively, with four- and five-year terms at 6.34% and 6.49%. Westpac's equivalent one-, two-, and three-year fixed rates have risen to 5.79%, 5.89%, and 5.99%, while its four- and five-year offers are at 6.09%.

Inflationary Pressures and RBA Expectations Drive Increases

The banks' decisions are largely attributed to persistent inflationary pressures and the anticipation of further cash rate increases from the Reserve Bank of Australia (RBA). The latest inflation data for January showed that year-on-year inflation matched December's print of 3.8%, while the RBA's preferred measure, trimmed mean inflation, increased from 3.3% to 3.4%. Both figures remain above the RBA's target band of 2-3%.

The RBA previously lifted the cash rate to 3.85% in February 2026. Analysts, including Canstar.com.au's data insights director Sally Tindall, noted that the rate increases are 'in response to elevated fixed rate funding costs, but also an expectation this is not the end of the cash rate hikes.' All four major banks—CBA, Westpac, NAB, and ANZ—now forecast an additional 0.25 percentage point RBA cash rate hike in May, which would bring the cash rate to 4.10%.

Broader Market Impact on Borrowers

These rate adjustments by CBA and Westpac are part of a wider trend across the Australian lending landscape. Since the RBA's cash rate decision on February 3, approximately 60 lenders have increased at least one fixed rate product. Consequently, fixed rates under 5% have largely disappeared from the market.

The impact on borrowers is significant. For instance, a $600,000 mortgage with 25 years remaining could see monthly repayments increase by an additional $90 if the RBA implements another 0.25 percentage point hike in May. Despite the rising rates, fixed loans remain less popular among borrowers, with CBA reporting that fixed-rate customers account for only 4% of its mortgage book, a decrease from 9% a year prior.