Citi economists are now forecasting that the Reserve Bank of Australia (RBA) will begin raising interest rates as early as February 2026, followed by another increase in May. This revised outlook is driven by rising inflation and stronger-than-anticipated domestic economic momentum. Citi, a global financial services company, provides various financial products and services to consumers, corporations, governments and institutions. Its operations range from consumer banking and credit to investment banking and wealth management.
Faraz Syed, an economist at Citi, stated, “We believe a tight labour market, new (higher) inflation forecasts, strong housing and household consumption all point to monetary policy being too accommodative.” This assessment has led Citi to adjust its previous stance of no policy change by the RBA throughout 2026. The economist added that the firm now anticipates a total of 50 basis points worth of rate hikes within the first half of that year.
This marks a significant shift from Citi’s earlier predictions, which had the RBA maintaining the current interest rate settings for the entirety of 2026. The updated forecast reflects increasing concerns over inflationary pressures and the resilience of the Australian economy. The predicted rate hikes are expected to address these concerns by moderating economic activity and curbing inflation.
The move could signal a broader shift in market expectations regarding the future direction of Australian monetary policy. Other financial institutions and economists will likely reassess their own forecasts in light of Citi’s revised outlook, potentially leading to further adjustments in market positioning and investment strategies.
