The Reserve Bank is overwhelmingly expected to hike rates at its first policy meeting of the year – but should it?

There’s a powerful consensus for a cash rate rise to 3.85%, from 3.6%, on Tuesday.

But not every expert is convinced it’s a good idea.

They warn a hike would be a “policy error” – one that could unnecessarily undermine the recent improvement in the economy after a lengthy period of very weak growth.

As the central bank’s monetary policy board met on Monday, Bloomberg reported only Goldman Sachs, Deutsche Bank and AMP were among the holdouts suggesting no change to the cash rate at the end of the two-day meeting on Tuesday.

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It’s a brave call to stand outside the herd, particularly when the market has become convinced that last week’s report showing another quarter of unexpectedly high inflation would force the RBA to act.

The deputy chief economist at AMP, Diana Mousina, admits that it “definitely feels uncomfortable” swimming against the tide of opinion, particularly as it’s “easy” to make a case for a hike or a hold.

But after debating for “a few days”, Mousina and her team eventually were convinced to stick with their prediction that the RBA board would – or at least, should – stay the course and keep the cash rate at 3.6%.

“Obviously, it’s a close call. I’d put it at a 50-50 chance. But I worry that if we hike rates we will derail the private sector recovery, which has only really begun in the past two quarters or so,” Mousina says.

She also says that while the quarterly underlying inflation figure – traditionally the RBA’s preferred measure – was high, there was evidence in the monthly data of moderating price growth in “problem” areas like rents, home building, and durable goods.

This trend into the end of 2025 suggested inflation is more likely to cool than heat up through this year, even without a rate hike.

She does not believe underlying inflation (which excludes big swings in the prices for some things like electricity) at about 3.5% is “problematic”.

“High inflation is worse for everyone, but I wouldn’t say it’s ‘high’, just higher than we would like it to be. A rate hike is just not necessary for our economy at the moment.”

The managing director at Market Economics, Stephen Koukoulas, is also among the few who are calling for a RBA rate hold on Tuesday.

He agrees that a rate hike “is clearly on the table”, but also that inflation appeared to be coming down after a brief hump through the second half of 2025.

And there are factors beside inflation that the RBA board needs to consider, most notably the labour market.

The unemployment rate unexpectedly dropped to 4.1% in December after a bumper month of jobs growth, adding to the case for a rate hike.

But Koukoulas believes that obscured a weaker underlying trend in the labour market. He says there are no signs of inflationary pressures in the wages figures.

“If you’re worried about an overheating labour market, I don’t think we are seeing it right now.”

There was also the context of extraordinary uncertainty in the global economy, not least because of Donald Trump’s chaotic policymaking, but also a slowing Chinese economy and madly gyrating financial markets.

He says a rate hike would not be a “fatal error” given the resilience of the economy, but “at the risk of quoting John Howard, we’ve had five minutes of economic sunshine”.

“We’re just getting our head above water: employment is a bit better, so is GDP growth. Let’s take a moment to enjoy it rather than be spooked by what easier monetary policy was meant to achieve.”

Deutsche Bank’s chief economist, Phil O’Donaghoe, also noted a rate hike would set our central bank apart from most of its global peers who are more likely to ease interest rates through 2026.

O’Donaghoe said there were precedents for Australia to follow its own path in defiance of global inflationary trends, but there was no good reason why that would be the case now.

“Certainly, there is no Australian mining boom to point to at the current juncture,” he said.

“This also raises the prospect that a kneejerk rate hike in February, just six months after the RBA’s last policy easing, could need to be unwound just as quickly.”