Will Major Banks Push for a February RBA Rate Rise?
Q&A Breakdown
Q1: What are Australia’s major banks predicting for February?
Both the Commonwealth Bank of Australia (CBA) and the National Australia Bank (NAB) expect the Reserve Bank of Australia (RBA) to raise the cash rate at its February meeting due to persistent inflation and stronger‑than‑expected economic activity.
Q2: Why do banks believe a rate hike is needed?
Economists at CBA say the economy has “picked up more momentum than expected,” with rising household spending, wage growth, and business investment pushing demand beyond capacity—keeping inflation elevated.
Inflation is expected to remain around 3.3% through 2026, above the RBA’s 2–3% target band.
NAB also points to stubborn price pressures and forecasts that trimmed‑mean inflation will continue running above 3%, reinforcing the case for tightening monetary policy.
Q3: What size rate rises are being forecast?
· Commonwealth Bank:
Predicts a 0.25 percentage point rate rise in February. This would be a “fine‑tuning” adjustment rather than the start of an aggressive cycle, aimed at guiding inflation back toward the target range.
· National Australia Bank:
Expects two rate hikes—one in February and another in May, taking the cash rate to 4.1%.
NAB argues that early, modest tightening can prevent the need for sharper increases later.
Q4: When do economists expect inflation to return to the RBA target?
CBA economists expect inflation to gradually return toward the midpoint of the target band by late 2027.
NAB analysts similarly suggest inflation pressures could remain elevated, meaning monetary policy may need to stay tighter for longer.
Q5: Are broader economic conditions influencing these forecasts?
Yes. The banks note several factors contributing to ongoing inflation:
· Strong household spending
· Rising wages
· Increased investment activity (e.g., data centres, housing)
· Capacity constraints in supply
These dynamics have kept the economy operating at or near its “speed limit,” reducing the likelihood of inflation easing on its own.
Q6: What do markets think will happen?
Financial market pricing suggests about a one‑in‑three chance of a February rate rise, with higher probability for a possible move later in 2026 depending on inflation outcomes.
Q7: What does this mean for borrowers?
Analysts warn that mortgage holders—especially those on variable rates—should prepare for the possibility of higher repayments in early 2026.
RBA Governor Michele Bullock recently signalled that if inflation remains sticky, rates could move higher.