National Australia Bank said it now expects the Reserve Bank of Australia (RBA) to raise rates in both March and May to a peak of 4.35%, according to a Thursday report.

The bank had previously forecast one rate hike in May and a peak policy rate of 4.1%. It cited commentary from both the central bank's governor and deputy governor over the past week, which signals that senior RBA officials are inclined to view the ongoing conflict in the Middle East as an inflationary shock.

NAB inferred that the central bank will have very limited tolerance for upside pressure on inflation and likely, somewhat more tolerance for softer growth outcomes. Its February forecasts implied that, should the economy progress as forecast, it would need to deliver around 65 basis points of rate increases in order to ensure that inflation returns to a more sustainable level. The future decisions will depend on the trajectory of oil prices and the domestic data.

The lender continues to expect a gradual easing back towards more neutral levels from the second half of 2027.