‘Threaten outlook’: Major banks make huge rate hike call ahead of Tuesday’s RBA meeting

Mortgage holders are being warned interest rates could return to their highest point in 15 years, at the same time as households face a huge spike in fuel costs.

The bond market is pricing in 68 basis points of additional rate hikes in 2026 – which would take the cash rate to just under 4.60 per cent.

This follows the Reserve Bank’s first interest rate hike of 25 basis points in February, and would take rates up by just short of 100 basis points over the year.

“This aligns closely with expectations for three 25 basis point hikes in total, which would push the cash rate to 4.60 per cent by year end – its highest level since October 2011,” IG market analyst Tony Sycamore said.

The money markets have increased their rate hike expectations as a combination of the US/Iran war and hawkish comments from the RBA spooks the bond market.

“The escalating turmoil from the Middle East conflict and surging energy prices is poised to tighten its grip on Australian households, amplifying cost-of-living pressures at a time when inflation remains sticky,” Mr Sycamore said.

In their latest updates, all four of the big banks – the Commonwealth Bank, National Australia Bank, Westpac and ANZ are all predicting the Reserve Bank will lift interest rates in both March and May.

Following an interest rate hike in February, this would reverse the three rate cuts in 2025, bringing the official cash rate back to 4.35 per cent.

ANZ has also changed its forecast that the RBA will now lift rates at both its March and May meetings.

“We then expect a pause while the RBA assesses whether the increase in the cash rate is sufficient to contain the inflation risks and give the RBA time to assess geopolitical developments and the global economic outlook,” Adam Boyton, head of Australian economics at ANZ, said.

Canstar says if all three rate hikes come in, households owing the bank $600,000 will have monthly payments increase by $272.

If the loan is $800,000 monthly repayments jump by $363 a month or if it is a $1m loan households will spend $453 more a month on their mortgages.

Commonwealth Bank head of economics Belinda Allen said the US-Iran conflict is adding pressures to Australia’s rising inflation issue.

“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,” she said.

“And at the same time also proposing downside risks to global and Australian growth.”

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Petrol prices have been increasingly volatile over the two weeks since the US and Iran conflict started.

At the end of February fuel prices were $US56 ($A79) a barrel, before soaring to a high of $US119 ($A167) a barrel in early March.

At the time of writing prices were $US94 ($A132) a barrel.

Every $10 a barrel increase to the price of oil adds roughly 10 cents a litre to prices Australians pay at the petrol pump.

Ms Allen said data released prior to the Iran-US conflict pointed to a stronger than expected economy.

Australia’s gross domestic product released in March showed the economy grew by 2.6 per cent in the 12 months to December 2025, with fears a growth rate above 2 per cent adds to inflation.

At the same time Australia’s unemployment rate is around a multi-decade low of 4.1 per cent.

“These conflicting pieces of evidence between offshore uncertainty and domestic pressures make the decision line ball,” she said.

“But we view the balance of probabilities have shifted given recent commentary and we now expect the RBA to hike the cash rate in March and May.

“The RBA showed its resolve to fight inflation in February by hiking the cash rate.”

NAB chief economist Sally Auld cited “hawkish” comments from both the RBA governor Michele Bullock and deputy governor Andrew Hauser as evidence of future interest rate hikes.

“It is clear from their commentary that senior RBA officials are inclined to view the Iranian conflict as an inflationary shock,” Ms Auld said.

Westpac also said the board would jump on interest rates on fears inflation expectations will set in, even if oil price shocks are a temporary issue.

“The RBA monetary policy board will nevertheless feel compelled to react, especially given the hit to confidence and financial markets has so far not been severe,” she said.

“Key information shifting our view is RBA communication revealing it has not changed its pessimistic view of growth in supply capacity following the national accounts, even though data revisions, consumption and unit labour costs paint a more benign picture.”