Three of Australia’s biggest banks have shifted their calls on the Reserve Bank’s next move, now tipping an earlier and steeper tightening path.
Major lenders National Australia Bank (NAB), the Commonwealth Bank of Australia (CBA) and Westpac have revised their cash rate forecasts ahead of the Reserve Bank of Australia’s (RBA) March rate decision next Tuesday (17 March), with the three lenders now suggesting the central bank will lift rates by 25 basis points.
As such, the cash rate would reach 4.00 per cent next week.
Moreover, the banks think the RBA will follow up with another hike in May.
This will mean the first three rate decisions of 2026 would be increases, following last month’s increase.
NAB swings to March and May hikes
In a significant revision to its outlook, NAB has moved from expecting a single hike in May to predicting back‑to‑back increases over the next two meetings.
“We now expect the RBA to deliver a 25bp increase to the cash rate at the March meeting, followed by another increase in May, taking the cash rate to a peak of 4.35 per cent,” NAB said.
The bank noted how sharp the change was compared with its earlier stance, stressing that it had previously viewed a second hike as a risk case.
“We previously expected the RBA to hike to 4.1 per cent in May, with the risk skewed to an additional increase. We see the risks as more balanced around our new baseline forecast for policy rates at 4.35 per cent in May,” it said.
NAB set out four main reasons for the shift, including a clear change in tone from the RBA’s leadership in recent days following the military conflict in the Middle East and the ensuing spike in oil prices.
“First, in our view, the combination of hawkish commentary from both the Governor and Deputy Governor over the past week contains more signal than noise.
”It is clear from their commentary that senior RBA officials are inclined to view the Iranian conflict as an inflationary shock,” NAB said.
The bank said that even before the Iran conflict intensified, the RBA was already grappling with an economy that was running too hot.
It pointed to inflation sitting above the 2–3 per cent band, growth running stronger than the RBA’s estimate of trend and a tight market.
Against that backdrop, NAB said the central bank would have limited patience for any additional upside surprises on prices and a greater willingness to accept slower growth.
“This means that the policy of least regret is to hike in March,” the bank said.
NAB also set out its concern that pausing for too long could leave monetary policy settings misaligned with the economic backdrop.
“Not hiking in March means that the RBA runs the risk of a longer period in which broader rate settings are not appropriate for economic fundamentals,” it added.
Looking further ahead, NAB said the RBA would ease the cash rate after an extended period at a higher peak.
“We continue to expect gradual easing back towards more neutral levels from H2 2027,” it said.
Westpac joins call for double hike
Westpac has moved in lockstep with NAB, revising its call to a pair of 25-bp hikes in March and May.
The bank previously expected a single hike in May, yet now believes the RBA will likely act at both of its next two meetings.
“We revise our view of RBA policy: 25bp hikes in both March and May expected. Single hike still possible but not our base case,” Westpac chief economist Luci Ellis said.
Under the new profile, Westpac now sees the cash rate topping out at 4.35 per cent, matching NAB’s forecast.
Westpac said the direct impact of higher oil prices on headline inflation would fade over time, but stated that the RBA would still feel obliged to respond to the latest surge.
“The RBA Monetary Policy Board will nevertheless feel compelled to react, especially given the hit to confidence and financial markets has so far not been severe,” Ellis said.
Yet Ellis reiterated that the arguments for waiting until May had not dissipated entirely, particularly given the risk of overreacting to a potentially temporary supply shock.
Beyond the near term, Westpac expects the higher peak to set up an extended period of restrictive eaing.
“We therefore also shift our expectations of the necessary reversal of tight policy, to Nov and Dec 2027 and Feb 2028,” Ellis said.
CBA suggests bets are each easy
The Commonwealth Bank of Australia also noted that the RBA have in the past favoured moving at meetings where staff forecasts are refreshed.
The economics team said: “Conflicting pieces of evidence between offshore uncertainty and domestic pressures make the decision line ball. But we view the balance of probabilities have shifted given recent commentary and we now expect the RBA to hike the cash rate in March and May. The RBA showed its resolve to fight inflation in February by hiking the cash rate.”
It noted that, with the world and inflation outlook moving rapidly, “there may be a preference to wait”, but added that “high frequency consumer inflation expectations are moving north and with an economy already running above capacity and inflation too high, this would be a concern for the Board”.
“The debate will be lively, as it should be, ultimately we expect the RBA to focus on inflation and lift the cash rate in both March and May to take the cash rate to 4.35 per cent,” it said.
”We will update the impacts on Australia from the Middle East conflict and higher rate expectations in due course.”
[Related: Majors brace for May hike after stubborn CPI result]
