The big banks are telling borrowers to watch out for an RBA rate hike

Homeowners are looking at their pocketbook, as all four major banks are predicting that the Reserve Bank will release money next week following another series of hot inflation data.

ANZ and Westpac released revised forecasts about the likelihood of a rate cut next week, after December inflation data was stronger for the back half of 2025.

It means all four major banks expect interest rates to be raised to 3.85% when the RBA meets in February, after Australian Bureau of Statistics (ABS) data found that inflation is significantly hotter and above the RBA’s target range of 2-3%.

In a market note following the data, ANZ’s head of economics in Australia Adam Boyton said the bank now expects one rate hike in February, but does not expect it to be “the start of a series”.

“We see the labor market as broadly balanced and unlikely to experience sustained inflationary pressure,” he added. “This supports the view that inflation will eventually reach its target.”

Westpac chief economist Luci Ellis branded the inflation data “uncomfortable” but said the expected rate hike next week would not be “followed by a sequence of measures”.

“Expect a ‘wait-and-see’ situation, with a clear willingness to follow up to be talked into following up [RBA’s] meeting,” he said.

The turn in expectations for banks comes after the Commonwealth Bank and National Australia Bank stuck in their expectations for a rate hike in December, citing concerns about a rise in both headline and core inflation, as well as an unexpected economic recovery.

The ABS confirmed on Wednesday that the Consumer Price Index rose by 3.8% in the 12 months to December.

On the baseline, which strips out the variable components the RBA looks at, inflation over 2025 was 3.3% on a new monthly basis.

REA Group Chief Economics Officer Angus Moore. Image: provided

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REA Group chief economist Angus Moore said the possibility of a price hike now looks likely.

“Inflation is above the RBA’s target band, and stronger than the 3.2% it forecast in November. That makes the rate rise in February.”

Deloitte Access Economics partner Stephen Smith said the forecasts raised big questions about Australia’s economic growth and strength.

It’s been more than two years since the RBA raised interest rates, cutting it three times in 2025 after ending the post-Covid deflationary period.

RBA governor Michele Bullock raised concerns at the Economic Standing Committee back in September about unsustainable domestic economic growth, however, pointing the finger at lower productivity and labor costs.

The bank has long struggled to accurately predict the course of the economy in an uncertain and unpredictable climate.

Pressures including the war in Ukraine and the Middle East, as well as tensions between the United States and China have affected energy prices, trade and markets.

“Whether the inflationary pressure on the economy is systemic or temporary is not entirely clear,” added Mr Smith. “The fact that it exists at all does not bode well for Australia’s future economic growth or our living conditions.

“A hotter-than-expected inflation figure, coming on top of last week’s drop in unemployment, will cause the RBA to panic.”

The next decision on interest rates will come on 3 February.