UBS economist George Tharenou has revised the firm’s outlook for the Reserve Bank of Australia (RBA), now anticipating the first cash rate increase to occur by the second quarter of 2026. This represents a shift from UBS’s previous forecast, which had anticipated the initial rate hike in the fourth quarter of 2026.
The change in UBS’s forecast follows the RBA’s decision to hold rates steady at 4.35 per cent during its recent meeting. The RBA board voted unanimously 9-0 to maintain the current rate. Hawkish commentary from RBA Governor Michele Bullock also influenced UBS’s revised outlook. Bullock indicated that inflation risks are now “tilted to the upside”.
Bullock’s comments followed the latest headline CPI figures, which revealed a surge to 3.8 per cent year-on-year. According to UBS, the RBA board considered scenarios that might warrant potential rate hikes next year, with a move as early as February 2026 deemed plausible, dependent on forthcoming economic data.
UBS now projects two 25 basis point increases in 2026, which would raise the cash rate to 4.85 per cent. The firm acknowledges that a third increase could be on the cards if inflation proves to be persistent. UBS analysts noted that the RBA’s historical response to inflationary pressures suggests the conditions for a rate hike may already be in place.
