Big banks tell borrowers to brace for a rate hike from the RBA – realestate.com.au

Homeowners are preparing for a hit in the hip pocket, with all four major banks now predicting the Reserve Bank will pick up the cash next week after another round of hot inflation data.

ANZ and Westpac have released updated forecasts on the chances of a rate cut next week after December inflation data showed strong forecasts for the second half of 2025.

It means all four major banks expect the cash rate to be raised to 3.85% when the RBA meets in February, after data from the Australian Bureau of Statistics (ABS) showed inflation is noticeably high and well above the RBA’s target range of 2-3%.

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 view the labor market as broadly balanced and unlikely to exert sustained upward pressure on inflation,” he added. “This supports the view that inflation will eventually moderate towards the target.”

Westpac chief economist Luci Ellis called the inflation figures “uncomfortable” but said an expected rate hike next week would not “necessarily be followed by a series of steps”.

“Expect a wait-and-see attitude, with a clear willingness to take action and communicate after the [RBA’s] meeting,” she said.

The turnaround in banks’ expectations comes after the Commonwealth Bank and National Australia Bank set their expectations for a rate hike in December, citing concerns about the rebound in both headline and underlying inflation, along with unexpected economic resilience.

The ABS confirmed on Wednesday that the consumer price index rose 3.8% in the 12 months to December.

On an underlying basis, which excludes the volatile components that the RBA looks through, inflation for 2025 was 3.3% based on the new monthly measure.

Angus Moore, REA Group executive manager of economics. Image: supplied

---

Angus Moore, executive manager of economics at REA Group, said a rate hike now appears likely.

“Inflation is above the RBA’s target range and stronger than the 3.2% it forecast in November. This makes a rate hike in February very likely.”

Deloitte Access Economics partner Stephen Smith said the forecasts raise big questions about Australia’s economic growth and capacity.

It’s been more than two years since the RBA raised the cash rate, with three cuts in 2025 after ending the period of high inflation post-Covid.

RBA Governor Michele Bullock raised concerns at the Standing Economic Committee in September that domestic economic growth would not be sustained, pointing the finger at low productivity and unit labor costs.

The bank has long struggled to accurately predict the trajectory of the economy in the uncertain and unpredictable geopolitical environment.

Pressures, including the war in Ukraine and the Middle East, and tensions between the United States and China have affected energy prices, trade flows and markets.

“Whether inflationary pressures in the economy are structural or temporary is not entirely clear,” 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 higher-than-expected underlying inflation rate, on top of last week’s fall in unemployment, will make the RBA nervous.”

The next interest rate decision will be on February 3.