Homeowners are bracing for a hit to their hip pocket, with all four major banks now predicting the Reserve Bank will lift the cash next week following another round of hot inflation data.
ANZ and Westpac have issued updated forecasts on the chances of a rate cut next week, after December’s inflation data came in strong for the back half of 2025.
It means all of the big four banks anticipate the cash rate will be lifted to 3.85% when the RBA meets in February, after Australian Bureau of Statistics (ABS) data found inflation is notably hot and well above the RBA's 2-3% target range.
In a market note following the data, ANZ head of Australian economics Adam Boyton said the bank now expects one rate hike in February, but does not expect it to be “the start of a series”.
“We see the labour market as broadly balanced and unlikely to be exerting sustained upward pressure on inflation,” he added. “This supports the view that inflation will ultimately moderate into the target.”
Westpac chief economist Luci Ellis. Picture: Jane Dempster/The Australian.
Westpac chief economist Luci Ellis billed the inflation data “uncomfortable” but said an expected rate hike next week won't "necessarily be followed up with a sequence of moves".
“Expect a ‘wait-and-see’ stance, with a clear willingness to follow up to be communicated following the [RBA’s] meeting,” she said.
The U-turn in expectations from the banks comes after Commonwealth Bank and National Australia Bank locked in their expectations for a rate hike in December, citing concerns about the uptick of both headline and underlying inflation, along with unexpected economic resilience.
The ABS on Wednesday confirmed the Consumer Price Index rose 3.8% over 12 months to December.
On an underlying basis, which strips out volatile components that the RBA looks through, inflation over 2025 was 3.3% on the new monthly measure.
REA Group executive manager of economics Angus Moore. Picture: supplied
REA Group executive manager of economics Angus Moore said a rate hike now looks likely.
“Inflation is above the RBA's target band, and stronger than the 3.2% it had forecast back in November. That makes a rate hike in February quite likely."
Deloitte Access Economics partner Stephen Smith said the forecasts raise big questions around Australia’s economic growth and capacity.
It’s more than two years since RBA put the cash rate up, delivering three cuts in 2025 year after putting a lid on the post-Covid high inflation period.
RBA governor Michele Bullock raised concerns to the Standing Committee on Economics back in September on domestic economic growth failing to sustain, however, pointing the finger at low productivity and unit labour costs.
The bank has long been struggling to accurately forecast the trajectory of the economy around the uncertain and unpredictable geopolitical climate.
Pressures including the war in Ukraine and the Middle East, as well as tensions between the United States and China have affected energy prices, trade flows and markets.
“Whether the inflationary pressure in the economy is structural or temporary is not entirely clear,” Mr Smith added. “The fact that it is present at all does not bode well for Australia’s future economic growth or our living standards.
“The hotter-than-expected underlying inflation figure, coming on top of last week’s fall in the unemployment rate, that will make the RBA nervous.”
The next decision on interest rates will come on 3 February.
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