Ahead of the RBA cash rate decision, brokers, traders, and major bank economists have all lined up behind a hike.
Mortgage brokers, financial markets, and the major banks are all tipping a 25-basis-point hike to the official cash rate today (17 March), as the Reserve Bank of Australia (RBA) confronts stubbornly high inflation, a tight labour market, and a rapid surge in fuel costs.
The monetary policy board of the RBA will announce the cash rate decision for March-April this afternoon, with many expecting that the cash rate will increase to 4.10 per cent.
Indeed, traders have moved decisively towards expecting the RBA to lift the cash rate.
The ASX 30‑Day Interbank Cash Rate Futures contract for March is now pricing roughly a 71 per cent probability of a 25‑bp increase to 4.10 per cent.
That pricing reflects a sharp swing from earlier in the month, when the same indicator suggested a stronger chance of a hold, underscoring how rapidly the oil‑price shock and major‑bank predictions have fed into expectations.
Brokers brace for further tightening
Home Loan Experts (HLE) senior mortgage broker Jonathan Preston said that while he had originally been expecting the cash rate to hold firm in March, the combined weight of major bank forecasts and rapidly shifting market pricing had compelled him to change his view.
“I was initially leaning hold, but with all four majors and market pricing now calling for hikes I’m leaning more towards a hike,” he said.
Preston added rate hikes are playing on the minds of borrowers, with refinancing and restructuring conversations dominating his client meetings; a trend he expected to continue.
HLE mortgage broker Robert Mo took an even more definitive stance and said that the cost‑of‑living squeeze he was seeing (particularly in transport and logistics), made a rise all but inevitable.
However, his colleague Sid Bajracharya said he believed the RBA would narrowly choose to hold the cash rate at 3.85 per cent, but conceded "it is a close call,” he said.
“The board historically prefers to wait for at least one full quarter of inflation data before deciding again, so they may hold fire until Q3 data is available," Bajracharya explained.
said the focus had moved away from trying to predict the result of each meeting to ensuring borrowers were positioned for a prolonged
Meanwhile, Sydney broker and managing director of Evolve Lending and Finance, Mark Stevenson, said that the impacts of the conflict in the Middle East would likely be top of mind for the central bank, particularly given rising fuel costs.
“The dilemma for the RBA is do they view it as a short‑term anomaly and disregard its impact on inflation, or do they take a hard and fast approach on reaching target inflation regardless of the circumstances?” Stevenson said.
“While they remain focused on trying to tame the inflation dragon, the impact of the war in the Middle East and the resulting escalation in fuel prices and possible shortages may put consideration of increasing rates again on the back burner,” he said.
Stevenson also said that the lengthy gap between the March and May meetings and the ongoing squeeze on household budgets meant that his firm was preparing for more clients to come under stress if rates edged higher.
Big 4 banks brace for twin rises
The changing broker sentiment comes after several lenders revised their forecasts last week.
All four major banks have lined up behind a unified call that the cash rate would be raised in March and May, as the RBA responds to the inflation risk posed by the sudden conflict‑driven spike in energy costs.
The Commonwealth Bank (CBA), Westpac, Australia and New Zealand Banking Group (ANZ), and National Australia Bank (NAB) are all forecasting a 25-bp March hike to 4.10 per cent, followed by another move to 4.35 per cent in May.
Major bank economists have said that the combination of above‑target inflation, a tight jobs market, and surging oil prices left the RBA with little room to sit on its hands.
In a memo sent on Monday, Westpac chief economist Luci Ellis elaborated that while the spike in oil prices would not last forever, the sheer size of the potential impact to headline inflation meant that the board would need to move hard and fast.
“The effect of higher oil prices on headline inflation is large but temporary,” Ellis said.
“But the Monetary Policy Board will nevertheless feel compelled to react, especially given the hit to confidence and financial markets from the Middle East conflict has so far not been severe.”
ANZ’s economists took a similar stance and said that the oil shock had brought forward tightening that might otherwise have been delayed until later in the year.
The bank economists said: “inflation risks were creating more urgency to move quickly to contain inflation expectations.”
These forecasts are set against a global backdrop in which the ongoing US/Israel–Iran military conflict has pushed crude towards US$100 a barrel, well above last year’s average, and driven a sharp rise in petrol and diesel prices at Australian bowsers.
[Related: Big 4 unite behind twin March, May hikes]
