CBA sees February RBA rate hike as growth runs hot. Citi & NAB also expect February hike.

Australia's economy is increasingly exhibiting signs of needing further monetary tightening. Commonwealth Bank (CBA) economists forecast a 25 basis point rate hike by the RBA in February despite market skepticism. CBA argues that economic momentum is stronger than the RBA anticipated, with GDP accelerating in H2 2025 and activity levels around potential. Household consumption is a key driver, as real disposable incomes recover. Labor market conditions are supportive of this tightening call. Employment growth remains resilient, and unemployment is expected to stay low even as population growth moderates. Wage growth continues to outpace productivity, indicating domestic cost pressures are inconsistent with inflation returning smoothly to target without further policy restraint. Despite headline inflation moderating, underlying measures show persistence. CBA highlights loosened financial conditions, with equity markets rallying and household spending exceeding expectations. This increases the potential for demand to accelerate faster than supply. CBA acknowledges that while the timing of a hike is finely balanced, acting sooner could minimize risks associated with entrenched inflation expectations. A February hike would reinforce the RBA's credibility in fighting inflation, ensuring it returns sustainably to target.