NAB and Westpac economists now expect the central bank to deliver two 25 basis point hikes, one in March and another in May, pushing the cash rate to a peak of 4.35%.
Both banks are revising their earlier call of a single hike in May and a peak rate of 4.10%.
Inflation risks heightened
In its updated forecast, NAB said robust economic growth, a tight labour market, and stubborn inflation already supported further tightening of monetary policy before added inflationary pressures from the war in the Middle East.
NAB economists said it was clear from recent commentary that senior RBA officials are inclined to view the Iranian conflict as an inflationary shock.
They said new upside pressure on inflation has strengthened the case for another cash rate increase.
However, the bank noted the outlook remains uncertain, citing the trajectory of oil prices and incoming domestic data as major factors in determining whether the 4.35% peak is reached.
Westpac, which previously said hikes are considered a risk rather than the central scenario, now say rising oil prices are pushing up headline inflation, an effect they believe will be significant but may also be temporary.
The bank said the RBA ’s recent communication suggests policymakers remain pessimistic about growth in the country’s supply capacity, even though revisions to national accounts, softer consumption data, and labour costs painted a somewhat benign picture.
Geopolitical tensions cloud inflation outlook
Westpac acknowledged there are still arguments for the RBA to delay raising the cash rate until May, particularly given the temporary nature of some inflation pressures and the risk of more extreme market instability.
A split vote at the upcoming meeting is possible, the bank said, but the board holding the rate steady is no longer its base case.
Meantime, ANZ analysts said the ongoing conflict in the Middle East is adding uncertainty to the economic outlook, with rising oil prices lifting inflation in the near term.
But longer disruptions to energy supply may weigh on economic activity and eventually dampen inflation.
The bank said this creates a complex policy backdrop for the RBA, though recent commentary suggests policymakers remain vigilant about inflation risks.
The RBA's next monetary policy meeting is on 16-17 March with the board due to hand down its cash rate decision on Tuesday at 2:30 pm (AEDT).
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