RBA's 'live' March meeting amid cash rate hike expectations
- Australia's official cash rate is widely expected to rise by 25 basis points to 4.10% on Tuesday
- The Reserve Bank's monetary policy board is meeting in Sydney over the next two days to determine whether an increase is warranted in the current economic climate
- Economists from all four big banks now expect a cash rate hike in March, after changing their forecasts last week
Markets and analysts are expecting the cash rate to rise on Tuesday, with all big four bank economists changing their forecasts last week to back a 25-basis point increase to 4.10%.
All four banks noted Australia was already facing high inflation, economic growth breaching its capacity, and a tight labour market before the outbreak of war in the Middle East.
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Commonwealth Bank said the March monetary policy board meeting is "set in a very different context to what was expected just two weeks ago".
It said the war had created an "uncertain backdrop" with all big bank economists noting the risk of already high inflation being worsened by oil price shocks.
ANZ noted the early impact of the conflict will be more on inflation than economic activity but said there would be some "demand destruction" caused by higher prices on disposable incomes.
RBA officials set the stage
Markets began pricing in the prospect of a March rate hike on the back of comments by RBA governor Michele Bullock earlier this month.
Ms Bullock told a business summit the March meeting would be "live" amid the geopolitical uncertainty and its possible flow-on effects to the Australian economy.
Previously, analysts had forecast the next increase to the cash rate would be in May.
The odds of a March rate hike firmed further when RBA deputy governor Andrew Hauser told a podcast the March meeting would feature "a very genuine debate".
Both comments were read as signals an earlier rate rise was on the cards.
As of Friday, markets were pricing in a 71% chance of a March rate increase, up from 0% the day before Ms Bullock made her "live" comment.
'Pre-emptive strike'
Both Westpac and NAB economists believe the ongoing conflict in Iran will be enough to tip the RBA towards a March rate hike.
As NAB economists put it:
"Against this backdrop, we can infer that the RBA will have a very limited tolerance for upside pressure on inflation and likely, somewhat more tolerance for softer growth outcomes.
This means that the policy of least regret is to hike in March."
In other words, March could see a cautionary rate rise in a bid to head off inflationary pressures sparked by higher fuel prices, even if it risks a downturn in economic activity.
Westpac chief economist Luci Ellis said there are "good arguments" for the cash rate remaining at its current 3.85% in March, given the oil price shock may be temporary and the possibility of more extreme market instability to come.
But she said that a hold in March is no longer the bank's base case.
All four big banks are also backing another 25-basis point rise to the cash rate in May, taking it to 4.35% where it's expected to remain for some time.
What will it mean for mortgage holders?
In practical terms, a 25-basis point rate rise in March will see repayments on an average $736,000 variable home loan increase by around $120 a month.
That comes on top of last month's cash rate hike.
A third 2026 cash rate increase in May would effectively wipe out the three interest rate cuts of 2025.
This likely illustrates it is more difficult to pull off an 'economic soft landing' - taming inflation without triggering a recession or high unemployment - than it appears.
And that was before a potential global oil supply crisis became a possibility.
The Reserve Bank will announce its cash rate decision on Tuesday at 2:30pm (AEDT) with RBA governor Michele Bullock scheduled to hold a media conference an hour later.
Follow Savings.com.au's live blog on the March cash rate decision on Tuesday, 17 March 2026.
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