The case for rapid-fire interest rate hikes is hardly watertight

March 16, 2026 — 5:00am

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On top of higher petrol costs, people with mortgages may soon be slugged with an interest rate rise, and this unwelcome news could well be confirmed this week.

Markets are putting the odds of a hike on Tuesday at about 65 per cent, and all four major banks are expecting a rate rise.

If they’re right, it would be the second hike in a row after the Reserve Bank last month raised interest rates by 0.25 of a percentage point to 3.85 per cent. Many also think the RBA, led by governor Michele Bullock, will make it a hat-trick and hike again in May.

Even though markets seem fairly confident we’ll get a rate rise on Tuesday, there are plenty of sound economic reasons for the RBA to sit tight and not rush into a hike this week.

That is because the war in Iran is a problem for the “supply” side of the economy – the part that deals with production of goods and services – as opposed to the “demand” side (spending on goods and services, mainly by households).

While Australia does indeed have an inflation problem, it is far from obvious that rushing out a series of quick-fire rate rises is the best way to respond to this latest supply-side shock.

The main reason markets are betting on further rate hikes in the near future is pretty simple: inflation is too high. But we’ve known that for a while. So what changed in the last week or so to convince the big four to change their forecasts and predict a rate rise sooner than previously........

© The Sydney Morning Herald