Major banks say RBA will hike again in May

Commbank and Westpac have both changed their official cash rate calls, joining NAB in forecasting another 25 bps cash rate hike in May.

After two successive quarters of prices increasing well above target, many felt the RBA had no choice but to hike in February and given it now forecasts inflation to remain too high until 2027, a growing number of economists feel monetary policy needs to be more restrictive still.

"Trimmed mean inflation is expected to remain above 3% through all of 2026, this is too high and will not be tolerated by the RBA," senior Commbank economist Belinda Allen said.

Westpac chief economist (and former assistant RBA governor) Luci Ellis agrees that the monetary policy board will be "dissatisfied" with the latest forecasts.

"[The monetary policy board] thinks it needs to do more than the roughly one extra hike that was priced in at the time those forecasts were finalised," she said.

NAB economists were already calling a May rate hike even before the February decision, while ANZ for now says it's likely to be one and done, but with risks "clearly" skewed to the upside.

Why May?

The aforementioned economists are in unison that it will be May that the RBA is likeliest to hike, not the next monetary policy meeting that will take place in March.

Despite the ABS shifting to a comprehensive monthly inflation read, the RBA has indicated it will continue to put most emphasis on the quarterly price information, which won't all be released until 29 April.

Ms Ellis says she "isn't ruling out" a March hike, but believes the board won't see the inflation outlook as "urgent" enough to fire before it has the full picture for the first quarter of 2026.

"It's clear from the post-meeting communication ... that the RBA thinks much of the increase in inflation is judged to be temporary and only some of it is persistent," she said.

"It is plausible that there are members of the board that see the need for tightening as urgent ... [but] we do not think the majority will vote for a March hike."

Any hope for mortgage holders?

Governor Michele Bullock and the rest of the board have been resolute they will do what's necessary to bring inflation back to target, Ms Bullock suggesting further rate hikes could be on the table after Tuesday's decision.

"I'm not predicting there will be more rate rises, but I'm also not saying that if inflation does remain too high that there mightn't be," she told media.

Per the most recent Statement on Monetary Policy (SOMP), the board is predicting trimmed mean inflation to rise by about 1.8% over the six months to June, which implies prices rising just under 0.9% during the March quarter.

Given the board's clear low tolerance for above target inflation, this would likely necessitate the follow up rate rise mortgage holders across Australia will now be concerned about.

The major hope is that inflation will be significantly softer than this, which some economists including AMP Bank's Shane Oliver do believe is possible given monthly trimmed mean inflation has trended lower each month since July, reaching just 0.2% in December which on an annualised basis is within target.

"Business surveys show output price indicators around levels consistent with the inflation target," Mr Oliver said.

"Consumer spending is likely to take a hit as we have swung quickly from rate cuts to hikes as mortgage stress likely remains high."