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“This situation is different from the tightening phase following the COVID pandemic when we were emerging from a 0.1 percent cash rate; back then, it was evident that we needed to raise rates swiftly,” she explained to the press.
Not everyone shares this cautious stance.
The Commonwealth Bank has revised its interest rate forecast for the year, aligning with NAB in predicting an increase to 4.10 percent by May.
The Reserve Bank of Australia’s latest projections indicate that inflation will remain above the 2-3 percent target range until the middle of next year, with core inflation not expected to fall within that range until 2028.
Belinda Allen, head of Australian economics at CBA, remarked that such inflation levels “will not be tolerated by the RBA.”
CBA head of Australian economics Belinda Allen said that “will not be tolerated by the RBA”.
“The risk always sat with a second rate hike to bring inflation back towards target and the economy back into balance,” she wrote.
“With the labour market now in a better position than a few months ago, and an increased resolve from the RBA, on the balance of probabilities we now see the RBA hiking again in May to take the cash rate to 4.10 per cent.
“But it remains a line-ball decision and is dependent on the data flow from here.”
The remaining two big four banks – Westpac and ANZ – are tipping interest rates will remain on hold for the rest of the year, although both have admitted there is a risk of another hike.
“The low bar for further hikes means that, (without) a downside surprise in the March quarter inflation outcome, the monetary policy board is likely to hike again in May,” Westpac chief economist Luci Ellis said. Â
In a further blow to the likelihood of inflation cooling off quicker – and potentially avoiding the RBA pushing up rates again – new research from non-profit the e61 Institute showed yesterday’s rate increase may not do much to slow down rising prices.
“Raising rates may not have a large impact on consumer spending in the near term,” research director Dr Gianni La Cava said.
“We found that when the RBA hiked rates by 4.25 percentage points over 2022 and 2023, people with variable mortgages barely changed their spending habits despite payments rising by $14,000 a year on average.
“This was because they could mostly finance the extra payments from large savings held in offset and redraw accounts.Â
“Those savings absorbed the shock, letting many households preserve their lifestyles despite higher interest costs.Â
“In late 2025, households still had significant buffers in their offset and redraw accounts, with 40 per cent of mortgage holders holding enough savings to make minimum payments for two years.
“This indicates that the latest interest rate rise will likely have a limited impact on spending through the cash flow channel.”
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