Source : THE AGE NEWS
Two of the country’s biggest banks have changed their forecasts and now expect the Reserve Bank will raise interest rates next week in response to growing pressure on inflation from the oil price shock caused by the war in Iran.
Westpac and National Australia Bank on Wednesday both tipped a 0.25 percentage point rise in the cash rate next week, while financial markets have put the odds of a hike at slightly more than 50 per cent, which would take it to 4.1 per cent.
Borrowers already endured one rate hike in February, which was the first since the Reserve Bank stopped cutting after its last reduction in August 2025. The Australian dollar hit its highest level since mid-2022, hitting US71.67c on Wednesday, amid expectations of the rate hike.
Deputy Reserve Bank governor Andrew Hauser adopted a hawkish tone on a podcast released on Tuesday, ahead of the RBA board meeting on Tuesday next week. “Inflation is too high. Higher prices don’t help that debate,” he told the Politics with Michelle Grattan podcast. “It’s fair to say, further increases of prices from Iran, if that is what we end up seeing, and that is a big if, is not a helpful development from the perspective of our policy discussion.”
Economists at UBS wrote in a note to clients that: “We think the RBA will act early, by hiking [rates] in March 26” to shore against the risk that the war-induced fuel price shock lets inflation get out of hand.
Hauser’s comments also prompted Deutsche Bank economist Phil O’Donaghoe to change his call and predict a rate rise for next week. “We now expect the RBA to hike 25 basis points at its meeting on Tuesday,” O’Donaghoe said, and warned that while “a ‘third in a row’ follow-up hike in May is not yet our base case, risks are skewed that way.”
Economists at Westpac and National Australia Bank followed suit. Westpac chief economist Luci Ellis said the key trigger for the change in the bank’s forecast was new communication from the RBA that signalled “a willingness to respond to the spike in headline inflation” and prevent a rise in inflation expectations among the wider public.
“The effect of higher oil prices on headline inflation is large but temporary. The RBA monetary policy board will nevertheless feel compelled to react, especially given the hit to confidence and financial markets has so far not been severe,” Ellis said.
Andrew Murray, head of fixed income broker Curve Securities, said markets now implied a 56 per cent chance of a rate rise next week. “It’s definitely live,” he said of the meeting. “It’s a very serious consideration that they will hike.”
The Australian sharemarket stayed higher at lunchtime amid the turmoil as the mining giants and banks advanced, while retailers, property and technology struggled amid rate rise concerns.
The S&P/ASX 200 rose 34 points, or 0.4 per cent, to 8726.60 as of 1.04pm AEDT, having climbed 1.1 per cent on Tuesday. However, the local bourse is still sharply lower for the week after Monday’s 2.9 per cent tumble.
The nation’s mining giants continued their recovery from their slump early this week. BHP rose 1.3 per cent and Fortescue Metals added 3.1 per cent as iron ore prices edged up another 0.8 per cent to $US103.90 per tonne overnight. Gold miners were also stronger, with Northern Star Mining up 3.7 per cent and Newmont rising 2.3 per cent.
The morning’s biggest winner, however, was Lynas Rare Earths, which rallied 13.7 per cent after the company announced last night it has signed an updated agreement to supply rare earths to Japan for the next 12 years at “fair market pricing,” according to its CEO Amanda Lacaze.
Energy stocks shed early gains after a Wall Street Journal report saying the International Energy Agency has proposed the largest release of oil reserves in its history sent oil prices falling. The release would exceed the 182 million barrels of oil that IEA member countries put onto the market in two releases in 2022, when Russia launched its full-scale invasion of Ukraine. Woodside and Santos were 0.8 per cent and 0.3 per cent lower, respectively.
Meanwhile, the big four banks advanced further at lunchtime, underpinning the gains on the ASX, amid bets that higher interest rates will bolster their profit margins. CBA was up 1.4 per cent, National Australia Bank and Westpac both rose 1.2 per cent and ANZ was up 1.7 per cent.
Stocks dependent on consumer discretionary spending wobbled in face of those rate calls, with Wesfarmers – the owner of the Kmart and Bunnings chains – down 0.2 per cent. Electronics retailer JB Hi-Fi lost 2.3 per cent and kitchen appliances maker Breville dropped 2.6 per cent.
Technology stocks, which rely on affordable borrowing conditions, also fell, with WiseTech Global down 3.8 per cent and accounting software makers Xero and Technology One down 1.6 per cent and 0.7 per cent, respectively. Warehouse and IT data centre owner Goodman Group (down 1.6 per cent) sent real estate investment trusts lower.
The largely positive start to trading on the ASX comes after Wall Street held steady overnight, despite conflicting news about the war in the Middle East that triggered dramatic swings in the oil price. The S&P 500 dipped 0.2 per cent. The Dow Jones Industrial Average fell 0.1 per cent, and the Nasdaq composite edged higher by less than 0.1 per cent.
“It very much feels like a market trading in the fog of war, reacting in real time as events unfold, rather than one moving in an orderly fashion,” observed Rebecca Babin, a senior energy trader at CIBC Private Wealth Group.
Oil continued to seesaw, with prices sliding again on the back of theWall Street Journal report.
WTI crude was 0.7 per cent lower at $US82.83 per barrel at 11.35am AEDT while Brent, the international standard, was 0.4 per cent lower at $US87.44.
Earlier this morning, oil prices had recouped part of their steepest one-day slide in four years, as uncertainty over the outlook for crude supplies continues to rattle markets amid worries that the war could block the global flow of oil and natural gas for a long time. Prices whipsawed on rapidly shifting comments from the Trump administration over the war in Iran. Volatility spiked as US Energy Secretary Chris Wright erroneously posted — and then deleted — a message that the US Navy had escorted an oil tanker through the Strait of Hormuz, only for the White House to concede no operation had occurred.
Additionally, Iran launched new attacks at Israel and Gulf Arab countries, keeping pressure on the Middle East in a war started by Israel and the United States while Trump warned Iran against laying mines in the Strait of Hormuz and threatened to blow up any ship attempting to do so, underscoring his determination to get oil flowing through the vital waterway after almost two weeks of war.
It comes after oil prices plunged on Monday afternoon from a high of nearly $US120 per barrel, its most expensive level since 2022, after Trump said he thinks “the war is very complete, pretty much.” But in later comments he wasn’t as clear, and a spokesperson for Iran’s paramilitary Revolutionary Guard said that “Iran will determine when the war ends.”
That has Wall Street waiting for the next clue about how long the war may last.
“The outlook for oil right now is about as binary as it gets,” according to Hakan Kaya, senior portfolio manager at Neuberger Berman.
“Either the Strait of Hormuz reopens, and you see a massive unwind of the risk premium, or it stays shut, and we are looking at the largest supply disruption in modern history. There is no middle ground, and that is why putting a number on it is almost irresponsible.”
With AP, Bloomberg, Reuters
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Clancy Yeates is deputy business editor. He has covered banking and financial services, and was previously national business correspondent in the Canberra bureau.Connect via X or email.
