CBA warns of tougher times ahead as rates rise and outlook darkens

The majority of borrowers awoke Friday (27 March) to bigger mortgage repayments.

Westpac lifted rates on Tuesday (31 March), while the other big four banks have lifted variable interest rates by 0.25 per cent.

Australia’s biggest bank, Commonwealth Bank (CBA), went further by upping its fixed term rate by 0.30 per cent, above the Reserve Bank of Australia’s 25 basis point hike on 17 March.

The banks are forecasting more interest rate pain to come for borrowers.

Canstar’s Data Insights Director Sally Tindall said fixed rates are also continuing to climb in response to the higher cash rate and the possibility of another hike in May.

“Just one month ago, there were more than 20 lenders offering at least one fixed rate under 5.50 per cent - today, there’s just two left on the Canstar database; that’s a significant shift in just a matter of weeks.

“Variable borrowers across the country are now having to brace for the second cash rate hike in as many months, while staring down the barrel of a potential third hike as soon as May.

“There’s almost certainly more pain ahead for borrowers, with all four big bank economists forecasting another 0.25 percentage point hike in May.”

More rate hikes do appear a certainty.

The latest inflation data saw headline inflation drop from 3.8 to 3.7 per cent, while core inflation remained steady at 3.3 per cent.

All major banks are forecasting the RBA will hike interest rates again at its May meeting.

Westpac on Tuesday (31 March) upped its cash rate forecast for the year, tipping the RBA will deliver three further rate hikes in 2026.

The bank now expects the RBA to increase the cash rate by 0.25 in May, June and August, making it a total of five hikes in as many meetings. 

This would take the cash rate to 4.85 per cent – a level not seen since November 2008, when the cash rate was coming down on the back of the Global Financial Crisis (GFC).

CBA’s outlook on rate-fuelling inflation and the broader Australian economy has also taken a severe turn for the worse.

The bank has lifted its inflation forecasts while lowering its expectations for economic growth, with unemployment also tipped to rise more sharply than previously anticipated.

It is also becoming increasingly evident that the joint US-Israel strikes on Iran — and the resulting escalation across the Middle East — are unlikely to be resolved quickly, contrary to earlier expectations of a short-lived conflict.

The disruption has effectively choked off the Strait of Hormuz, a critical passage for around one-fifth of global oil supply, sending fuel prices higher and adding to inflationary pressures in Australia.

CBA outlook turns rather bleak

Commonwealth Bank Head of Australian Economics, Belinda Allen, said Australia’s inflation challenge has resurfaced faster than expected, with the local economy “growing above its sustainable speed limit” just as higher global energy prices add further pressure. 

“In our central scenario, the conflict is expected to persist for some time, and the Strait of Hormuz is unlikely to reopen in the near term, despite ongoing reports of US-Iran negotiations,” she said.

“About half of the inflation basket [the hypothetical ‘basket’ of goods the ABS uses to measure price movements] is rising by more than 3 per cent,” she said. “That tells us this is not a narrow problem.”

The Consumer Price Index (CPI) rose 3.7 per cent in in the 12 months to February, down from 3.8 per cent for January. The biggest contributors to annual inflation in February were housing (7.2 per cent), food and non-alcoholic beverages (3.1 per cent) and recreation and culture (4.1 per cent). Trimmed mean inflation - the RBA's preferred measure - remained unchanged at 3.3 per cent for February, the ABS reported.

Ms Allen identified three possible trajectories for the conflict in Iran, each carrying markedly different consequences for inflation and economic growth.

A swift de-escalation would likely see oil prices retreat, containing the inflationary impact of the conflict. A more drawn-out but contained situation would keep energy costs elevated, placing a drag on growth while sustaining upward pressure on inflation.

The most severe scenario involves a significant escalation, including damage to energy infrastructure or major disruptions to shipping through the Strait of Hormuz.

“In that case, oil prices could climb towards US$150,” Ms Allen said.

“Australia’s economic growth rate could be cut roughly in half, while inflation would rise well beyond 5 per cent.”

Although stronger energy prices could boost Australia’s export earnings, Allen warned the overall effect would still be negative for households.

She added that Australian households are, on average, entering this period of uncertainty with stronger financial buffers than in previous economic cycles. Those buffers include higher savings, with many mortgage holders choosing not to reduce their repayments through last year’s interest rate cuts.

Housing values and residential construction activity are also expected to soften further through 2026–27, as higher interest rates, easing population growth and the prospect of tax changes weigh on the market, adding to the broader slowdown in household wealth and economic momentum.

This article was updated Monday (30 March) with Westpac’s revised 2026 interest rate forecasts