Higher interest rates: what the RBA’s 2026 outlook could mean for the ECEC sector

Persistent inflation, cautious monetary policy and a ‘higher for longer’ interest rate environment could shape financial realities for ECEC providers, educators, families and landlords well into 2026.

The Reserve Bank of Australia (RBA) is expected to maintain higher interest rates for longer than previously anticipated, with implications for the early childhood education and care (ECEC) sector spanning everything from mortgage repayments to rent costs and savings returns.

According to UNSW Business School economists, although inflation is easing, it remains outside the RBA’s target range, meaning rate cuts are unlikely in the near term. The cash rate currently sits at 3.60 per cent, and RBA messaging suggests any reductions will be gradual, data-dependent, and responsive to wage trends, productivity and global conditions.

This has significant implications for the ECEC sector, which is already contending with tight operating margins, workforce shortages and pressure from families managing cost-of-living challenges.

Many approved providers and centre managers own or lease premises with mortgages. Higher interest rates mean repayments will remain elevated, putting pressure on service viability, particularly for those who expanded or refinanced during the pandemic when rates were historically low.

Even if the RBA begins to reduce the cash rate in late 2026, economists warn that repayment relief will be slow. This limits cash flow for reinvestment in facilities, staffing and programming, and may delay expansion plans or quality improvement initiatives.

For services that lease their premises, the situation is equally complex. While rental costs are primarily driven by supply and demand, high interest rates and tight commercial property markets may lead landlords to pass on increased financing costs through rent increases.

This is especially true in metropolitan areas where demand for commercial property remains strong and vacancy rates are low. The result may be steeper lease renewals or reduced bargaining power for providers operating on constrained budgets.

Educators, many of whom are renters or mortgage holders themselves, are also affected by the higher-for-longer interest rate outlook. Elevated repayments and stagnant wage growth compound the financial pressure experienced by the ECEC workforce, with flow-on effects for retention and morale.

For families, interest rate settings shape broader household affordability. Mortgage repayments, rental increases and cost-of-living pressures can impact decisions about work participation and early learning enrolments, particularly for those not eligible for maximum Child Care Subsidy.

In a sector reliant on predictable funding and stable enrolments, interest rate uncertainty adds another layer of financial complexity. Services with variable rate loans may need to reassess financial planning assumptions, while those managing multiple sites must factor in differential impacts across locations and lease arrangements.

UNSW economists emphasise that while inflation is expected to moderate, the RBA remains cautious, especially if wage growth or global shocks keep price pressures elevated. In the meantime, households,  including ECEC educators and families are encouraged to prepare for continued financial constraint.

For the ECEC sector, staying informed and financially agile will be key as the economic cycle unfolds through 2026 and beyond.