Banks split on whether RBA’s next move is a hike or cut as energy risks loom

Australia’s major banks are divided over the Reserve Bank of Australia’s next interest rate move, with some forecasting a further hike and others expecting a cut, as rising energy prices threaten to keep inflation elevated.

What’s driving the split among banks?

The divergence reflects differing views on how much weight the RBA will place on recent inflation data versus signs of a slowing economy. Some lenders point to sticky services inflation and the potential pass-through of higher energy costs, while others emphasize weak household spending and a softening labour market.

As of this week, major financial institutions have publicly updated their cash rate forecasts. Those expecting a hike argue that the RBA’s commitment to returning inflation to its 2–3% target band may require additional tightening if energy prices push headline inflation higher. Conversely, banks forecasting a cut highlight that the full impact of previous rate rises is still feeding through the economy, and that keeping rates too high for too long could trigger an unnecessary downturn.

Energy prices: the key uncertainty

Energy costs have become a central variable in the RBA’s outlook. Global oil price volatility and domestic electricity price pressures could add to inflation in the coming quarters, complicating the central bank’s task. If these pressures prove persistent, the case for another hike strengthens; if they fade quickly, the path to easing becomes clearer.

The RBA has repeatedly stated that its decisions will be data-dependent, leaving the market to interpret each monthly inflation print and jobs report. This uncertainty is reflected in the banking sector’s mixed forecasts.

What this means for borrowers and businesses

For households and businesses, the split forecasts mean continued uncertainty over borrowing costs. Mortgage holders with variable-rate loans may need to budget for either scenario, while businesses planning investment will be watching the RBA’s next meeting closely. The central bank’s next decision is scheduled for early next month, and its accompanying statement will be scrutinised for any shift in language.

Conclusion

With Australia’s major banks split on the RBA’s next move, the outlook for interest rates remains genuinely uncertain. The interplay between energy prices and underlying inflation will likely determine whether the next change is a hike or a cut. Until clearer data emerges, both households and businesses should prepare for either possibility.

FAQs

Q1: When will the RBA make its next interest rate decision?
The RBA’s next monetary policy meeting is scheduled for early next month. The decision will be announced at 2:30 PM AEST, followed by a press conference.

Q2: How might energy prices affect the RBA’s decision?
Higher energy prices can push up headline inflation, which may prompt the RBA to raise rates to keep inflation within its target band. Conversely, if energy prices fall or stabilise, the RBA might have more room to cut rates to support economic growth.

Q3: What should borrowers do given the uncertainty?
Borrowers should review their budgets to ensure they can handle a potential rate increase, while also considering the possibility of a cut. It may be wise to consult with a financial advisor to assess individual circumstances.