Finance experts predict that higher interest rates are becoming the new normal due to increasing inflation and global megatrends like artificial intelligence, geopolitical conflicts, and decarbonization. Economists use the concept of a "neutral interest rate," which is currently estimated by Commonwealth Bank's Trent Saunders at 3.85%, up from 3.25% last October, reflecting the economy's resilience against recent hikes and broader global shifts since the pandemic. This trend suggests that Australian rates may continue to rise beyond current expectations as the world adjusts to these significant societal changes.
Written locally by qwen2.5:14b on 2026-09-21,
using this article's own text rather than the other coverage of the
same event (that is the story summary below).
Trying to guess where interest rates might move from month to month is a favourite pastime for many people in the financial markets (not to mention finance journalists).
uncertain
rates → try → journalists
And lately, we’ve all had plenty to speculate about.
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we → have → plenty
The surging oil price is making our inflation problem worse, prompting markets last week to price in up to three more Reserve Bank interest rate rises, which would push the cash rate above 5 per cent.
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which → surge → cent
Rather, it’s about where rates are likely to gravitate in years ahead, and I’m afraid the recent news on that front is not what borrowers want to hear.
Economists and market experts lately have predicted rising global interest rates in the long term, and that’s likely to mean we end up with higher rates in Australia.
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we → ’ → Australia
The causes are not only increasing inflation but also global “megatrends” as the rise of artificial intelligence, growing geopolitical conflict and decarbonisation.
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causes → increase → intelligence
What do these huge societal shifts mean for interest rates?
Quite a bit, according to the “neutral interest rate,” an economic concept that’s big in the world of central banking.
Raising interest rates is akin to hitting the economic brakes and cutting rates is like stepping on the accelerator, while the neutral rate is just that – one that neither stimulates nor slows the economy.
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that → mean → economy
The dismal science of economics is known for being theoretical, but even here the concept of a neutral rate is fuzzy.
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concept → know → rate
It can’t be measured or observed, as with the unemployment rate can, and it changes over time.
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it → measure → time
Instead of measuring it, economists attempt to estimate where the neutral rate might be, and then use that in their analysis of whether interest rates should be more expansionary or contractionary.
It can get highly technical, but the key point is this: market economists believe the neutral rate has been steadily rising in recent years.
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rate → measure → years
Commonwealth Bank’s senior economist Trent Saunders last week said CBA had lifted its estimate of the current neutral rate to 3.85 per cent, up from 3.7 per cent in July and 3.25 per cent last October.
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CBA → say → July
These estimates have risen partly because our economy has been surprisingly resilient – it’s held up better than expected against three rate rises this year, for example.
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it → rise → example
There is a much bigger global story, as estimates of “neutral” interest rates have also risen around the world since the pandemic.
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estimates → be → pandemic
This is where the huge trends of our era – such as AI, increased military spending and decarbonisation – come in.
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trends → increase → AI
Economists say that what ultimately sets global interest rates in the long term is the balance between savings and investment.
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sets → say → savings
If you’ve got too much saving for the amount of investment, the returns savers can expect for lending their money will be lower (that is, they’ll have to accept a lower interest rate), and the converse if you have more investment than savings.
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you → get → savings
From the late 1990s to the early 2020s, there was a long-term decline in global interest rates, and a popular explanation for this was the “savings glut”.
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explanation → be → this
This basically said there was too much saving compared to investment opportunities, which drove down global rates.
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which → say → rates
Since the early 2020s, that trend appears to have stopped.
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trend → appear → 2020s
“We expect investment demand to remain strong relative to global saving, placing continued upward pressure on neutral rates,” CBA’s Saunders says.
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Saunders → expect → rates
Westpac’s chief economist Luci Ellis, who has been talking about a higher “neutral rate” for two years, lists various reasons why we’re not going back to the low-rate world of the 2010s.
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we → talk → 2010s
There’s been a societal shift toward greater expectation of government intervention in the economy – a trend that was solidified in the pandemic – which has meant higher spending by governments.
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which → solidify → governments
Raising interest rates is akin to hitting the economic brakes and cutting rates is like stepping on the accelerator, while the neutral rate is just that – one that neither stimulates nor slows the economy.
The growing rivalry between the US and China has prompted governments to spend more on defence and on supporting “strategic” industries, such as certain types of manufacturing.
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rivalry → raise → manufacturing
The likes of AI and the energy transition are soaking up more private sector investment.
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likes → soak → investment
Ellis’ view is that we’re not going back to the 2010s world of cheap money because it was an “aberration”.
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it → go → money
What does all this mean for borrowers?
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this → mean → borrowers
Put simply, it means the average level of interest rates in years to come is likely to be higher than it was in the low-interest rate world that preceded the COVID-19 pandemic.
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that → put → pandemic
There will still be cycles of interest rate moves, meaning the RBA will raise and cut rates in response to shorter-term “cyclical” changes in the economy.
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RBA → mean → economy
But the “structural” or deep-seated trend will be towards higher interest rates than we’ve had in the past.
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we → have → past
And when the RBA does eventually cut interest rates in this cycle - a move some expect next year - it won’t need to cut them by very much to take its foot off the brake and move into “neutral territory.”
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it → cut → territory
In short, even when the RBA is satisfied it has inflation under control, we should not expect rates to come down by much.
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rates → have → much
And unless there’s a crisis, they won’t return to the rock-bottom levels of last decade.
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they → ’ → decade
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newsletter → deliver → stories
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