Bendigo and Adelaide Bank has said the cash rate will be hiked midyear, as opposed to May, as ongoing energy shocks and fragile demand cloud the RBA’s next call.
Bendigo and Adelaide Bank chief economist David Robertson has said that the Reserve Bank of Australia (RBA) is now more likely to leave the cash rate on hold in May and instead deliver its next increase in August, setting the regional lender apart from the major banks.
Robertson noted in his April economic update that the central bank had pivoted sharply this year, referencing the two cash rate rises in February and March.
“The RBA has already hiked rates twice this year – an extraordinary change from market expectations in August last year, when rates were projected to fall below 3 per cent,” Robertson said.
He said the earlier shift in strategy occurred even before the latest flare‑up in the Middle East, reflecting stronger‑than‑expected domestic conditions rather than geopolitics alone.
Robertson stated that the focus had now turned to whether the RBA should respond immediately to the latest global energy shock or wait for more information.
“Ultimately, the RBA will need to decide in early May if the oil crisis and related disruptions will see supply and demand dangerously out of kilter, or if they can look through some of the data and not risk pushing the economy into recession,” he said.
Bendigo breaks ranks on timing and flags single August hike
Robertson flagged early signs that higher borrowing costs and more expensive fuel were already weighing on households.
“While household spending held up reasonably in February, and spending on fuel will be higher in March, there is an expectation that discretionary spending will fall in Q2,” he said.
At the same time, he emphasised that underlying price pressures remained above the RBA’s 2–3 per cent target band, yet added that they were not accelerating dramatically.
“Core inflation was still only 3.3 per cent in February, and the March number, out later this month, will probably only be marginally higher than this,” Robertson said.
Balancing these forces, Bendigo and Adelaide Bank’s central case is that the cash rate will remain unchanged at the RBA’s May meeting before being hiked by 25 basis points in August.
“We predict a hold in May, but with a likely third hike for 2026 in August,” Robertson said and described the backdrop as one of the most complex policy environments in years.
He added that the timing debate fed directly into next month’s federal budget, with Treasury and the government having to frame fiscal settings, while monetary policy was still in flux.
“All of this makes for a fascinating, but challenging environment, for the federal budget in which fiscal policy will be in focus on 12 May,” he concluded.
He also cautioned that sustained energy disruption always raises the spectre of stagflation, where inflation stays elevated even as growth slows and unemployment rises.
Major banks’ cash rate expectations
Bendigo’s announcement comes after Westpac’s chief economist, Luci Ellis, on 30 March overhauled the bank’s interest rate outlook, now forecasting back‑to‑back 25-bp hikes in June and August on top of a widely expected May move.
This would lift the cash rate to 4.85 per cent, the highest cash rate recorded since the global financial crisis in 2008.
Ellis said at the time that the main driver of the rethink was the worsening global energy shock stemming from the ongoing war involving Iran, the US, and Israel, which has effectively closed the Strait of Hormuz for around six weeks, sending oil and petrol prices sharply higher.
Westpac’s revised baseline now assumes a longer disruption to fuel supply and a slower recovery in shipping, with the bank stating that the crisis would feed through domestic prices more quickly and broadly than initially expected.
Ellis said the faster‑than‑anticipated pass‑through of fuel and other oil‑derived costs into a wider range of Australian prices would force the central bank to lean harder on policy.
Meanwhile, Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), and Australia and New Zealand Banking Group (ANZ) are all still projecting only one final 25-bp increase at the May meeting.
[Related: Westpac tips extended RBA hiking cycle after May rise]
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