Westpac Bank: The Reserve Bank of Australia will raise interest rates by 25 basis points in March, followed by a hike in May.

Investing.com - Westpac Bank economists stated in a research report that the Reserve Bank of Australia may raise interest rates by 25 basis points at the March meeting and follow up with another rate hike in May.

Westpac Bank said it has revised its policy outlook, now expecting the central bank to implement two rate hikes in the coming months, raising the cash rate peak to about 4.35%. The bank previously only expected one rate increase in May, with further tightening considered a risk scenario.

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Westpac Bank economists noted that recent surges in oil prices could temporarily boost overall inflation, potentially prompting the RBA Monetary Policy Committee to act to prevent inflation expectations from rising.

Luci Ellis, Chief Economist at Westpac Bank, wrote: “The rise in oil prices has a significant but temporary impact on overall inflation. Nevertheless, the RBA Monetary Policy Committee may still feel it necessary to respond, especially considering that current shocks to confidence and financial markets are not severe.”

Westpac Bank’s shift in outlook also reflects recent communication from the RBA, indicating that despite some data showing moderate inflation pressures, policymakers remain concerned about weak supply capacity growth.

While a rate hike in March is now the bank’s baseline expectation, Westpac Bank stated that if market instability worsens or oil prices drop sharply, the RBA could delay action until May.

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