It was only last month, on 3 February, that the Reserve Bank of Australia delivered the country's first interest rate hike since November 2023.
Back then, the RBA lifted the official cash rate to 4.35% to combat inflation that was still running at around 4.9% in October 2023.
Since that high-water mark, the RBA delivered three interest rate cuts in 2025 as inflation began to ease off. This saw the cash rate drop to 3.60% last August. Which is where it stayed until February's 0.25% increase.
Commenting on its decision to tighten on 3 February, the RBA noted:
The board has been closely monitoring the economy and judges that some of the increase in inflation reflects greater capacity pressures. As a result, the board considers that inflation is likely to remain above target for some time… and it was appropriate to increase the cash rate target.
And this was before the United States and Israeli strikes on Iran, and Iran's retaliation, sent global oil prices surging above US$100 per barrel.
So, with the RBA set to release its latest interest rate decision on Tuesday, here's what Commonwealth Bank of Australia (ASX: CBA) says ASX investors should expect.
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CBA forecasts RBA interest rate to return to 4.35%
For much of 2025, most analysts were telling ASX investors to expect lower lending costs in 2026.
But those expectations have taken a sharp U-turn.
In a media release on Thursday, CBA said it expects not just one, but two interest rate increases from the RBA this year.
CommBank expects the RBA will hike by 0.25% on Tuesday and lift rates by another 0.25% at its May meeting. That would see the official Aussie cash rate back at 4.35%.
To put that into some context, you'd have to go back to November 2011 to find rates at a higher level.
CBA noted that Aussie inflation "remains stubborn" while the economy continues its strong performance.
Commenting on the outlook, CBA head of Australian economics Belinda Allen said:
The debate at the March meeting will be a close one. But with inflation still above target and the economy running above trend, we expect the board will choose to lift rates again and follow up with another move in May.
Allen noted that the rapidly changing global picture has shifted the bank's interest rate outlook. The Middle East conflict, in particular, has increased uncertainty alongside the risk of higher energy prices, which could further fuel inflation.
"While global uncertainty has increased, the domestic economy is still proving resilient. Inflation remains too high and the labour market is tight, which keeps pressure on the Reserve Bank to act," Allen concluded.
