Predict RBA rate hike next week

All four of Australia’s big banks have joined the chorus predicting the Reserve Bank of Australia (RBA) will hike the cash rate by 25 basis points on 17 March.

CommBank predicts the RBA’s March meeting will be “a line ball decision”, but ultimately expects the outbreak of war in Iran will force the central bank’s hand.

It’s a similar story for economists at ANZ, who expect the March decision won’t be “as clear cut as February’s” but will ultimately result in a hike.

The RBA monetary policy board will come together over 16 and 17 March, announcing its decision at 2:30pm AEDT on Tuesday, amid still-high inflation, a still-tight labour market, and concerns over oil prices.

“After hiking the cash rate in February, driven by a fundamental reassessment of the economy, conflict in the Middle East has further threatened the inflation outlook,” CommBank head of Australian economics Belinda Allen said.

Beyond the March meeting, the banking majors all tip the RBA to hike at its May meeting, bringing the cash rate from its current 3.85% to return to its previous 4.35% peak, though ANZ notes the latter figure has “some upside risk”.

CommBank and ANZ have revealed a near-identical line of thinking as presented by Westpac and NAB on Wednesday.

The two banks updated their RBA forecasts within an hour of each other, shifting predictions from one upcoming cash rate hike in May to pencil in an initial March hike too.

If the RBA lifts the cash rate in both March and May, any breathing room created for mortgage holders during the 2025 cutting cycle would effectively be unwound.

Still, a March cash rate hike is not yet guaranteed.

“There are arguments that can be made in being cautious and waiting to see how the situation evolves in the Middle East,” Ms Allan said.

“Certainly, we took this view early last week.

“But the near term inflation outlook, we expect, will carry weight given the current state of capacity pressures in Australia and recent commentary from the RBA has focused on inflation.”

The ABS’ Consumer Price Index (CPI) showed the RBA’s preferred trimmed mean inflation rose 3.4% over the year to January – remaining above the central bank’s 2% to 3% target rate.

Meanwhile, unemployment remained low and Australia’s gross domestic product (GDP) growth lifted to a two-year high.

“GDP growth of 2.6% per year came in above expectations, breaching the speed limit of 2.1% per year,” Ms Allen said.

“The unemployment rate printed for the second month in a row at 4.1%, remaining well below the RBA’s and our estimate of the NAIRU [Non-Accelerating Inflation Rate of Unemployment], and January CPI data suggested continued inflation pressures.”

Market traders also shifted their view yesterday.

The ASX Rate Tracker shows 62% of market participants seemingly expected a March hike on Wednesday – up from 31% on Tuesday.

What could a March hike mean for mortgage interest rates?

For borrowers who didn’t reduce their mortgage repayments after 2025’s three rate cuts – with Westpac the only big four bank that automatically lowers minimum repayments – any ‘repayment buffer’ created last year would further shrink if the RBA hikes in March and could disappear entirely if the central bank lifts rates again in May.

A March hike could also see variable rate borrowers hundreds of dollars worse off now than they were at the end of last year. 

When the cash rate was 4.10% – between February and May 2025 – the typical outstanding home loan rate sat around 6.10% p.a.

That compares to the 5.50% p.a. typical rate on an outstanding mortgage in January, before the RBA’s February hike.

Considering the average new owner‑occupier loan – $736,000 in December – on a 30‑year term, such an increase in mortgage rates could add around $280 per month to repayments, lifting them to around $4,460.

But worried borrowers aren’t without power.

Author and Zift consumer finance expert Joel Gibson encourages mortgage holders to reach out to their lenders and ask whether a better deal might be available.

“What you’ll find, particularly with mortgage lenders, is that they’re highly likely to play ball if you’ve bothered to pick up the phone and put them on the spot,” he told the Savings Tip Jar podcast.

“Even better, if you’ve done a little bit of research before you make that call and you know what the lowest rates on the market are.”

Advertisement

_{Image created on Canva using assets courtesy of Commonwealth Bank of Australia}