The Reserve Bank of Australia (RBA) is forecast to raise the official cash rate by 25 basis points in March after the oil shock introduced a material upside inflation risk, and given above-target inflation and a tight labor market, there is no compelling reason to delay, BofA Securities said in a note on Wednesday.

The firm noted that its forecast was contrary to consensus and market pricing for a hold.

Research showed that oil spikes are more likely to create persistent inflation when they hit during periods of elevated inflation, as expectations are less anchored and second-round effects are stronger, it said.

Underlying inflation exceeded the target midpoint since the fourth quarter of 2021, and the central bank's latest forecasts do not suggest it will return before mid-2028.