CBA and NAB have both revised their cash rate forecasts and now expect the cash rate to increase in February, when the RBA next meets.
The Commonwealth Bank of Australia (CBA) and National Australia Bank (NAB) have both revised their cash rate forecasts, joining the growing voices that believe that the Reserve Bank of Australia (RBA) will move to increase the official cash rate on 3 February.
The changes come following the RBA’s December rate call, and surprisingly hawkish language from RBA governor Michele Bullock in the post-meeting press conference, and as economic data continues to show strong growth.
Economists at CBA said that the Australian economy had “outperformed expectations” in 2025, with growth above capacity and “a resilient consumer” still spending money.
While the major bank noted that this recent easing cycle had helped improve economic activity, it flagged that the economy was “breaching” its speed limit, and inflationary pressures are emerging.
The bank’s economics team expects gross domestic product (GDP) to rise further in the next six months (to hit a peak of 2.4 per cent year on year in the first quarter of 2026), before dipping to 2.2 per cent by the end of the calendar year.
As such, the major bank’s economics team has abandoned its previous forecast of a prolonged cash rate hold next year and now expects the RBA to increase the cash rate by 25 basis points (bps) in February to “ensure inflation is returned to the mid‑point of the target band by the end of 2027”.
In an economic update on Tuesday (16 December), CBA’s economists wrote: “A distinguishing feature of the present cycle is that the economy has moved into a firm upswing with limited spare capacity to absorb stronger demand…
“The pick-up in growth has been stronger and faster than anticipated, especially for private demand…
“We see a rate hike as necessary to bring the economy back into balance and help return inflation back to its target. But a large hiking cycle is unlikely to be needed. Instead, we expect a degree of fine tuning by the RBA, following the economy’s strong response to the earlier shallow cutting cycle.”
The team said that the “most likely meeting for this hike is February 2026”, following the release of the 4Q25 CPI, which may “force the RBA’s hand” to hike rates at the February meeting.
It added that “a shallow hiking cycle from the RBA should be enough to cool inflation pressures and bring household consumption back down to a more trend-like outcome”.
If the CPI data is a smaller-than-expected print, CBA said it would likely only delay the hike until May, rather than see it removed from the outlook.
NAB calls two rate hikes
Similarly, NAB is also now backing a February rate hike. Its economics team released a monetary policy update on Tuesday (16 December), stating that it now expects the RBA to increase the policy rate by 25 bps in February.
Moreover, it added that “this is likely to be followed by another 25bp increase in May, taking the cash rate to 4.1 per cent”.
NAB’s economics team noted that the RBA’s outlook has become more “hawkish” recently, due to stronger-than-expected growth and inflation outcomes, with risks to both now skewed upside.
NAB believes that Q4 2025 core inflation will grow 0.9 per cent quarter on quarter, implying five consecutive quarters above 3 per cent and pushing real cash rates to unusually low levels for an economy near trend growth.
Elevated capacity utilisation, solid private demand, and rising household and business spending may also make the RBA likely to deliver a modest pre-emptive tightening of around 50 bps in early 2026 to keep growth near trend and inflation on track, NAB said.
The economics team suggested that by acting early, the RBA would be able to recalibrate policy gradually, avoiding a larger adjustment later. Nevertheless, they flagged that risks remain if inflation prints lower or the bank exercises greater caution.
The update reads: “Economics is famous if for nothing else than teaching us about trade-offs. So it shouldn’t be surprising that the choice facing the RBA in early 2026 very much reflects the essence of a trade-off. The decision is whether to essentially act early and by a little, versus waiting and risking having to act by a lot more.
“By acting early, the RBA will maximise its chances of executing a modest recalibration of policy that returns inflation onto the appropriate trajectory, keeps growth close to trend and the labour market close to full employment. Pre-emptive action should also minimise the amount of tightening needed and allow scope for a gradual return to more neutral policy settings in the mid-to-late 2027 – where we have pencilled in 50bps of cuts taking the cash rate back to 3.6 per cent by the end of the year.
“Not acting early – or waiting (hoping) for better inflation outcomes to appear – runs the risk that a larger adjustment to policy is required at a later date. By definition, this risks less optimal outcomes for both growth and the labour market.
“In our view, the shift in the distribution of risks to both growth and inflation requires the RBA to deliver a modest recalibration of monetary policy in the next six months. We think this recalibration is probably in the order of 50bp of hikes and will help to restore the real cash rate to more suitable levels. Acting early will maximise the chance that policy makers can return inflation towards the appropriate trajectory while keeping growth at trend and the labour market close to full employment.”
Westpac sees a prolonged hold
Meanwhile, Westpac has rolled back its forecast for two rate cuts next year - instead suggesting there will be a prolonged hold.
Writing in an economic update on Wednesday morning (17 December), chief economist Luci Ellis wrote: “Westpac Economics has revised its outlook for the RBA cash rate to an extended hold for the whole of 2026.
"While the RBA recognised that some of the recent inflation surprise reflected temporary factors, it has clearly taken signal from it. Inflation is expected to moderate in 2026, but not soon enough to induce the RBA to step back from its current hawkish view of the risks. If our broader set of forecasts are borne out, rate cuts are still feasible in February and May 2027."
However, she said there “are risks on both sides”, stating: “We reserve the option to put rate cuts in 2026 back on the table if the labour market starts to unravel.”
Nevertheless, she said: “We think that rate hike talk is premature. We cannot rule out that more near-term bad news on inflation spooks the RBA and induces a near-term hike, but in our view, it is not the most likely outcome.”
ANZ has not yet released updates to its cash rate forecasts, but the latest projections from the major showing that ANZ is forecasting an extended hold next year.
[Related: Further rate cuts ‘not needed’: RBA governor]
