Updated ,first published
Borrowers face the growing prospect of an interest rate hike next week, after two of the country’s biggest banks predicted the Reserve Bank would jack up rates in response to ongoing high inflation and the oil price shock caused by the war in Iran.
Westpac and National Australia Bank on Wednesday both tipped a 0.25 percentage point rise in the cash rate next week, while financial markets have put the odds of a hike at about 65 per cent, which would take it to 4.1 per cent.
Borrowers already endured one rate hike in February, which was the first since the Reserve Bank stopped cutting after its last reduction in August 2025. The Australian dollar rose to its highest level since mid-2022, hitting US71.67¢ on Wednesday, amid expectations of rising rates.
Deputy Reserve Bank governor Andrew Hauser adopted a hawkish tone on a podcast released on Tuesday, ahead of the RBA board meeting on Tuesday next week. “Inflation is too high. Higher prices don’t help that debate,” he told the Politics with Michelle Grattan podcast. “It’s fair to say, further increases of prices from Iran, if that is what we end up seeing, and that is a big if, is not a helpful development from the perspective of our policy discussion.”
After the remarks, several major banks changed their views and pencilled in a rate rise next week.
Economists at UBS wrote in a note to clients: “We think the RBA will act early, by hiking [rates] in March 26” to shore against the risk that the war-induced fuel price shock lets inflation get out of hand.
Hauser’s comments also prompted Deutsche Bank economist Phil O’Donaghoe to change his call and predict a rate rise for next week. “We now expect the RBA to hike 25 basis points at its meeting on Tuesday,” O’Donaghoe said.
Economists at Westpac and National Australia Bank followed suit. Westpac chief economist Luci Ellis said the key trigger for the change in the bank’s forecast was new communication from the RBA that signalled “a willingness to respond to the spike in headline inflation” and prevent a rise in inflation expectations among the wider public.
“The effect of higher oil prices on headline inflation is large but temporary. 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,” Ellis said.
National Australia Bank changed its forecast so that it now expects rate rises next week and one in May, from its previous view of just one in May. Its economists said the tight labour market and high level of inflation had supported one further rate rise, but the new “upside pressure” on inflation tipped the balance in favour of an additional increase.
Andrew Murray, head of fixed income broker Curve Securities, said markets now implied a 66 per cent chance of a rate rise next week. “It’s definitely live,” he said of the RBA’s meeting. “It’s a very serious consideration that they will hike.”
The growing market bets of rate rises came as banks and miners helped to lift the ASX on Wednesday, while property and technology stocks struggled.
The S&P/ASX 200 closed 0.6 per cent, or 50.9 points, higher at 8,743.50, having climbed 1.1 per cent on Tuesday. The local bourse is still lower for the week after Monday’s 2.9 per cent tumble.
Mining giants continued their recovery from their slump early this week. BHP rose 1.4 per cent and Fortescue Metals added 3.7 per cent as iron ore prices edged up another 0.8 per cent to $US103.90 per tonne overnight. Gold miners were also stronger, with Northern Star Mining up 3 per cent and Newmont rising 1.6 per cent.
Lynas Rare Earths rallied 16.2 per cent after the company announced late on Tuesday it has signed an updated agreement to supply rare earths to Japan for the next 12 years at “fair market pricing,” according to its CEO Amanda Lacaze.
Bank shares climbed amid bets that higher interest rates will bolster their profit margins. CBA and Westpac rose 0.5 per cent, while National Australia Bank rose 1.1 per cent and ANZ was up 1.8 per cent.
Retailers were mixed, with Wesfarmers gaining 0.5 per cent while electronics retailer JB Hi-Fi lost 1.5 per cent and kitchen appliances maker Breville dropped 2.3 per cent.
Technology stocks fell, with WiseTech Global down 3.6 per cent and accounting software makers Xero and Technology One down 2.2 per cent and 1.1 per cent, respectively.
Wall Street held steady overnight, despite conflicting news about the war in the Middle East that triggered dramatic swings in the oil price. The S&P 500 dipped 0.2 per cent. The Dow Jones Industrial Average fell 0.1 per cent, and the Nasdaq composite edged higher by less than 0.1 per cent.
Oil prices fell after a report the International Energy Agency was considering a major release of crude reserves to take some of the pressure off prices.
Earlier on Wednesday, oil prices had recouped part of their steepest one-day slide in four years, as uncertainty over the outlook for crude supplies continues to rattle markets amid worries that the war could block the global flow of oil and natural gas for a long time.
Prices whipsawed on rapidly shifting comments from the Trump administration over the war in Iran. Volatility spiked as US Energy Secretary Chris Wright erroneously posted — and then deleted — a message that the US Navy had escorted an oil tanker through the Strait of Hormuz, only for the White House to concede no operation had occurred.
With AP, Bloomberg, Reuters, AAP
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.
Clancy Yeates is deputy business editor. He has covered banking and financial services, and was previously national business correspondent in the Canberra bureau.Connect via X or email.
