The Commonwealth Bank has called it! Interest rates to rise in the new year, but how soon?

Commonwealth Bank of Australia Ltd (ASX: CBA) economists have made a call on interest rates, saying they now expect the Reserve Bank of Australia to hike the official rate as soon as February.

Not all economists are on the same wavelength, however, with the team at RBC Capital Markets still expecting Australian official interest rates to stay on hold throughout calendar 2026.

Modest move higher likely

The CBA team issued a statement on Tuesday, stating that it believes the RBA will hike by 25 basis points in February, then leave the official rates on hold at 3.85% for the remainder of the year.

The reasons why:

Australia's economy finished 2025 with more strength than expected. Households are spending more, wages have been rising, and businesses are investing in areas like data centres and renewable energy. But this stronger activity has arrived at a time when the economy is already close to its 'capacity constraints' – meaning the economy is running close to its maximum sustainable speed. When demand grows faster than the economy's ability to supply goods and services, prices tend to rise.

This will then feed into inflation and put further pressure on the RBA to raise rates.

The CBA's head of Australian economics, Belinda Allan, said the economy "has picked up more momentum than expected, and that strength is keeping inflation from easing.''

A small rate increase in February would guide inflation back toward the RBA's target range of 2-3 per cent.

The CBA also said inflation has been slower to fall than expected.

They went on to say:

The key trimmed mean inflation measure – which removes unusually large price changes to give a clearer picture of underlying inflation – rose to 3.0% in the September quarter and is expected to stay above that level until well into 2026. The persistence of inflation suggests that price pressures are becoming more widespread, rather than being driven by only a few items. 

No hike just yet, RBC says

The team at RBC take a contrarian view on rates, saying that they expect the RBA to keep rates on hold, but they do admit that the chance of a rate rise is "climbing fast".

They went on to say in a note to clients on Tuesday:

The last few rounds of inflation, labour market and national accounts data have brought the possibility of rate hikes firmly into the frame. A modestly more restrictive policy stance may well be both prudent and appropriate. The onus is now on the data to prevent hikes.

The post The Commonwealth Bank has called it! Interest rates to rise in the new year, but how soon? appeared first on The Motley Fool Australia.

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