The latest change leaves ANZ the only big four bank expecting interest rates to remain on hold for the remainder of this year despite RBA governor Michele Bullock’s warnings on inflation.
The banks' about-face comes just days after the Reserve Bank of Australia (RBA) hiked the cash rate 25 basis points to 3.85%, swiftly ending a rate cutting cycle it kicked off in 2025.
Westpac chief economist and former RBA assistant governor Luci Ellis argues inflation would have to “surprise notably on the downside” to stop the RBA from hiking in May, a view shared by CommBank head of Australian economics Belinda Allen.
“Our outlook now sees inflation not coming back into the target band until the middle of next year,” Ms Bullock told an economic committee on Friday morning.
Lifting the cash rate is the central bank’s only trick to keep inflation within its 2% to 3% target band, as higher interest rates increase borrowing costs and reduce household spending.
Its latest statement of monetary policy (SoMP), released earlier this week, shows the bank expects its preferred trimmed mean inflation rate to rise from 3.4% in the December quarter to a peak of 3.7% by mid-2026.
From there, it’s expected to fall to 3.2% by late-2026 and finally, into the target band by mid-2027.
That’s despite those forecasts assuming financial markets are right about two further rate hikes in 2026.
A second rate hike could leave households $2.6k worse off per year
Tuesday’s 25 basis point rate hike is expected to lift the typical variable home loan rate from 5.50% p.a. to 5.75% p.a., adding around $110 to the monthly repayments on an average new home loan ($694,000).
A second cash rate hike, bringing the cash rate to 4.10% and variable rates to around 6% p.a., could see home loan borrowers paying nearly $2,650 more per year than they were at the start of 2026.
Could rate changes impact your finances? Mortgage Repayment Calculator
May meeting to bring RBA rate hike: CommBank, Westpac, NAB
“The RBA monetary policy board appears to be dissatisfied with the inflation trajectory implied by its staff forecasts,” Dr Ellis said on Friday. “It is unlikely that the data flow will turn softer soon enough to prevent it from moving in May.”
Interestingly, it was only last week that Westpac was predicting the cash rate to stay on ice for the entirety of 2026.
CommBank has also pivoted from its previous prediction that the cash rate will remain at 3.85% for some time, joining NAB in forecasting a May rate hike on Tuesday.
“With the labour market now in a better position than a few months ago, and an increased resolve from the RBA, on the balance of probabilities we now see the RBA hiking again in May … but it remains a line ball decision and is dependent on the data flow from here,” Ms Allen said.
And while ANZ remains alone in predicting the cash rate will remain on hold for some time, its economics team noted the RBA’s tone was more hawkish than it expected and “risks of another rate increase in May are considerable”.
Though, not all economists are singing the same tune.
AMP chief economist Shane Oliver believes inflation peaked in the September quarter and expects it to soon begin falling towards the target band.
None of the major banks are forecasting the RBA’s next meeting, scheduled for 16 and 17 March, will bring a cash rate move, though many do make note of the possibility.
Advertisement
Lender Home Loan Interest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees Max LVR Lump Sum Repayment Extra Repayments Split Loan Option Tags Features Link Compare Promoted Product Disclosure
Promoted
Disclosure
Disclosure
Promoted
Disclosure
Image created on Canva using assets from Commonwealth Bank of Australia and Kiwiteen123 on Wikimedia Common
Share