- Commonwealth Bank and ANZ have joined Westpac and NAB in forecasting an increase to the cash rate next week
- All four big banks cite uncertainty about the inflationary pressures of the Middle East war as tipping the odds in favour of a March rate hike to 4.10%
- Markets are also now pricing in a 62% chance of a rate increase on Tuesday
Big four peers Commonwealth Bank and ANZ join Westpac and NAB in switching their forecasts for Tuesday's RBA meeting to a cash rate hike, followed by another in May.
The change sees the country's four largest banks update their cash rate outlooks within a 24- hour period, with all citing the inflationary pressures of the war in the Middle East.
In announcing its update, CommBank said next week's RBA monetary policy board meeting is "being set in a very different context to what was expected just two weeks ago".
It said the war has set an "uncertain backdrop" to the March meeting.
All big bank economists noted the risks of already high inflation being exacerbated by oil price shocks but CommBank was more strident, saying inflation will lift further away from target as energy and other linked goods prices rise.
War lights the fuse for another lift
The big banks, along with a groundswell of other analysts, agree inflation is already too high, the economy is already breaching its capacity limit, and the labour market remains tight.
They say conflict in the Middle East is the new variable that will likely prompt a pre-emptive cash rate hike in a bid to contain inflationary pressures.
But CommBank notes while the war has the capacity to further threaten the inflation outlook it could also pose downside risks to global and Australian economic growth.
ANZ said the early impact of the conflict is more on inflation than activity but noted there will also be some "demand destruction" through the effects on disposable incomes.
However, it said the timing and magnitude of this is less certain.
As well as the 25-basis point cash rate increase, bringing it to 4.10% in March, the big four are also expecting a further rate hike to lift it to 4.35% in May.
At this stage, all four banks say that rate will then remain in place for some time.
Banks in line with market expectations
Market sentiment has been shifting towards a March cash rate hike in recent weeks, ramped up by recent commentary from RBA officials.
Last week, RBA governor Michele Bullock's reference to the March meeting as "live" fuelled market expectations of a rate increase.
This week, comments by deputy governor Andrew Hauser on a podcast predicting inflation would be driven higher by oil price flow-ons were also read as a signal the Reserve Bank would consider a rate hike in March.
In recent times, the RBA's monetary policy board has show a preference for waiting for quarterly inflation data before moving the cash rate.
That had lined up with a May increase, following the release of March quarter inflation data on 29 April.
Now it seems those bets are off with markets pricing in a 62% chance of a rate increase in March.
The Reserve Bank monetary policy board will meet on 16-17 March with its cash rate decision due to be handed down on Tuesday at 2:30pm (AEDT).
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