Citi has updated its forecasts for the Reserve Bank of Australia (RBA), now anticipating two additional interest rate increases in 2026. This shift in perspective is attributed to the diverging economic trends currently at play, with a deepening correction in the housing market contrasting sharply with a surge in artificial intelligence-related investment. This AI-driven boom is intensifying capacity constraints and stoking inflationary pressures.

The bank's economists, led by Faraz Syed, noted in a Friday report that persistently low productivity, a tight labor market, and elevated oil prices could keep inflation stubbornly high. "We believe the RBA will need to tighten monetary policy further to get ahead of the inflation curve, although a dovish stance could delay such action," the analysts stated. Citi has consequently lifted its terminal rate forecast from 4.60% to 4.85%, a revision from its previous projection of a single hike.