Back-to-Back Rate Hikes? Why Banks Are Forecasting a Cash Rate of 4.35%
Three Major Banks, Same Call
In a significant shift this week, economists at NAB, Westpac and Commonwealth Bank all changed their forecasts to predict back-to-back RBA rate hikes. They now expect a 0.25% increase at the March 17 meeting, followed by another 0.25% in May, taking the cash rate to 4.35%.
This would match the post-pandemic peak reached in late 2023, essentially unwinding the single rate cut delivered in February 2025.
UBS and Deutsche Bank have made similar calls, making this the most widely predicted rate hiking cycle since the RBA began tightening in 2022.
What Changed?
Three things shifted the outlook dramatically in the space of a week.
The oil price shock. Brent crude surged 25% following the escalation of the Iran conflict, pushing Australian petrol prices up 17 cents per litre in the past week alone. Higher fuel costs feed directly into transport, logistics and ultimately the price of everything on supermarket shelves.
Strong economic growth. Australia’s economy recorded 0.8% quarterly growth, driven by mining and agriculture. That’s good news in isolation, but it means the economy is running hot at exactly the wrong time for inflation.
The RBA’s own words. Deputy Governor Andrew Hauser made it clear that recent data had “confirmed even more strongly” the inflationary pressures the board was watching. Markets interpreted that as a green light for March.
What Does 4.35% Mean in Dollar Terms?
For a borrower with a $600,000 variable rate mortgage over 30 years, two rate hikes would mean roughly $190 extra per month, or $2,280 per year.
On a $800,000 mortgage, that figure jumps to around $250 per month, or $3,000 annually.
These are significant numbers for households already stretched by rising fuel and grocery costs.
| Loan Size | Extra Monthly Cost (0.50% rise) | Extra Annual Cost |
|---|---|---|
| $500,000 | ~$158 | ~$1,896 |
| $600,000 | ~$190 | ~$2,280 |
| $700,000 | ~$221 | ~$2,652 |
| $800,000 | ~$253 | ~$3,036 |
What Borrowers Should Do Now
1. Stress-test your budget. Add $250 per month to your current repayments and see how your household copes. If it’s tight, you need a plan before the hikes land.
2. Talk to your broker. Fixed rates may still offer better value than riding out two variable rate increases. A mortgage broker can compare your options across lenders and find the best fit.
3. Review your loan structure. Splitting between fixed and variable gives you certainty on part of your loan while keeping flexibility on the rest.
4. Don’t panic-sell investments. Rate hikes are priced into markets quickly. Selling assets to pay down your mortgage in a rush often locks in losses at the worst time.
The Bigger Picture
Bank of America has gone further, forecasting up to four rate hikes in 2026, which could push the cash rate close to 4.5% by year-end. That’s the bearish scenario, and it depends largely on how long the Middle East conflict persists and its impact on global energy prices.
The optimistic scenario is that oil prices stabilise, inflation expectations cool, and the RBA stops at one hike. But right now, the consensus is firmly in the “two hikes” camp.
Get Ahead of the Curve
If you’re carrying a variable rate mortgage, now is the time to explore your options. Find a mortgage broker on WealthWorks who can help you navigate the rate environment and find a loan structure that protects your household budget.
Frequently Asked Questions
What cash rate are banks forecasting for mid-2026?
NAB, Westpac and CBA are forecasting two 0.25% hikes in March and May, which would take the cash rate from 3.85% to 4.35%.
How much extra would I pay on a $700,000 mortgage?
Two rate hikes totalling 0.50% would add roughly $210 per month, or $2,520 per year, to repayments on a typical $700,000 variable rate mortgage.
Is there any chance rates won't go up?
Some economists, including ANZ, still see a hold as possible in March. It depends heavily on oil prices and upcoming inflation data.
