Bank consensus builds for near term RBA hike as economists cite sticky inflation
The prevailing sentiment among economists indicates a high likelihood of an RBA rate hike within the year, driven by persistent inflation concerns. Per the full note source, six out of seven major banks now foresee at least one rate increase, narrowing the debate to the timing of such a move, particularly focusing on the upcoming September and November meetings. This shift translates to expectations of rising bond yields and upward pressure on the Australian dollar as markets react to inflation data and economic indicators leading up to these meetings. With CBA's adjustment to anticipate a hike in November, now at 4.60%, the market's response will be critical, particularly as data releases on employment and GDP come into play ahead of the RBA decisions, making every data point a substantial market signal.
What the desk is arguing
The desk asserts that the RBA is poised for a rate hike, with strong indicators pointing towards a shift in monetary policy. The move by CBA to forecast a 25bp increase in November emphasizes a broader consensus among major banks about the urgency for further tightening to address inflation concerns.
RBA's targeted cash rate now sits at 4.60%, reflecting expectations built from rising CPI numbers that have alarmed economists. Notably, Westpac remains a dissenting voice, still predicting a hold while the others align on the timing of the hike.
Where it sits in our coverage
Our internal consensus does not offer specific forecasts for this move, but the outlook from major banks suggests a near-term target of 4.60%, particularly from notably aligned firms like CBA and ANZ. The desk’s position aligns closely with expectations from firms such as CBA and Goldman Sachs, which have shifted to predict hikes by year's end.
How other firms see it
Firms such as CBA, ANZ, and Goldman Sachs see a strong case for a November hike, while Westpac stands out for its hold position, reflecting a more cautious view amid rising inflation. The likelihood of a rate increase positions the Australian dollar for potential upward momentum.
Related currency pairs such as AUD/USD will be directly influenced by these RBA moves, alongside market sentiments on Australia's economic conditions, notably labor force and CPI dynamics.
Key takeaways
- 01Six out of seven major banks now predict a near-term RBA rate hike.
- 02CBA cites a significant CPI surge as justification for tightened policy.
- 03A November hike is most anticipated, with September being a possibility.
- 04Westpac's hold outlook signifies potential volatility in upcoming data releases.
Market implications
Traders should monitor the AUD/USD level closely as the consensus builds around a rate hike, with the upcoming release of Australian GDP and labor force data acting as critical catalysts that could sway market sentiment further.
Risks to this view
A significant downturn in inflation data or economic performance could lead the RBA to reconsider its tightening stance. Should Westpac's outlook hold true and other banks follow suit, it may also result in diminished expectations for a hike in the near term.
The shift among major bank economists toward a near certain RBA hike this year materially changes the near term outlook for Australian rates markets. With CBA's move, six of the seven institutions covered in this post now expect at least one more increase, with the main point of debate now the timing rather than the direction, split between a September and a November move. That should keep upward pressure on short end bond yields and the Australian dollar into the September 28 to 29 meeting, with markets likely to treat every piece of data between now and then, including August labour force figures and GDP, as a live input into whether the RBA moves early or waits for the fuller picture from the August CPI print (30 September), then September picture landing on 28 October, just ahead of the 2–3 November meeting..
Westpac's continued outlier position, still expecting a hold, means any further data surprise in either direction has scope to move the consensus again. --- Almost every major bank now expects the RBA to hike again this year, with only the timing, and Westpac, still up for debate. Summary: CBA has switched its call to a 25bp RBA hike in November to 4.60%, saying the broad based upside surprise in July's CPI has crossed the threshold needed to trigger further tightening, while flagging some risk of an earlier September move (CBA note, 27 August) ANZ expects a November hike to 4.60%, with head of Australian economics Adam Boyton saying the data show inflation risks are closer to crystallising (Reuters) Goldman Sachs has also moved to a November hike call, joining ANZ (AFR) Citi's Josh Williamson sees the cash rate at 4.6% this year, having previously flagged November, and says the risks are tilting toward further rather than fewer hikes (AFR) UBS economist Stephen Wu says a November hike is more likely than September, arguing an earlier move would signal the RBA sees itself as behind the curve and could open the door to multiple hikes (Reuters) NAB now expects a September hike to 4.6%, saying July's CPI ran hotter than the RBA anticipated and that the central bank has repeatedly signalled it would act if upside inflation risks were realised (Reuters) Deutsche Bank also tips a September hike, with chief economist Phil O'Donaghoe describing July's trimmed mean inflation as intolerably high (AAP) Westpac remains the outlier on direction, still expecting the RBA to hold rates for the rest of the year despite the hot CPI print, citing stable housing costs and a softer labour market and wage outlook (Westpac note) National Australia Bank and Commonwealth Bank have become the latest major banks to switch to expect a 25 basis point hike in November that would take the cash rate to 4.60 per cent. In a note from its Global Economic and Markets Research team, CBA's head of Australian economics Belinda Allen said the broad based upside surprise in July's CPI had crossed the threshold needed to materially increase the likelihood of another hike, describing the reading as the final straw after months of RBA commentary emphasising a low tolerance for further inflation surprises.
The bank flagged 2 to 3 November as the most likely meeting, following the September quarter CPI on October 28, but said it could not rule out an earlier move at the September 28 to 29 meeting given the RBA's recent rhetoric. NAB and CBA's move brings them into line with a growing majority of major bank and institutional forecasters, though the group remains split on timing. ANZ was among the first to shift, with head of Australian economics Adam Boyton saying the July data suggested inflation risks flagged in the RBA's August minutes were closer to crystallising, prompting a move to a November hike call.
Goldman Sachs joined ANZ on a November call the same day,. Citi's Josh Williamson, who had previously pencilled in a November increase, told the AFR he now sees the cash rate at 4.6 per cent this year, with risks tilted toward further rather than fewer hikes. UBS economist Stephen Wu has argued a November move remains more likely than September, saying an earlier hike would signal the RBA sees itself as behind the curve and could open the door to a longer tightening cycle, whereas a September meeting could instead be used to lay the groundwork for a move in November.
On the other side of the timing debate, NAB has moved to expect a September hike, also to 4.6 per cent. In a note to clients, NAB economists said July's CPI data showed inflation running hotter than the RBA had expected as recently as early August, and pointed to the central bank's repeated signalling in recent weeks that the Monetary Policy Board would act if upside risks to inflation were realised. Deutsche Bank holds the same September view, with chief economist Phil O'Donaghoe describing July's trimmed mean inflation as intolerably high and arguing there is little to be gained by waiting for November, though he acknowledged more dovish board members may prefer to delay.
Westpac is the most notable holdout on direction altogether. The bank has said it still expects the RBA to hold rates for the remainder of the year, arguing that housing cost inflation remained broadly as expected in July and that a softer labour market and weaker wage outcomes reduce the likelihood of a November move, even as it acknowledges the risk of a hike has increased. CBA's note said the case for further tightening was reinforced by signs businesses are able to pass on higher costs, the ongoing supply shock from the Middle East conflict, the Fair Work Commission's award wage decision flowing through to labour intensive services, and continued resilience in discretionary spending.
The bank still expects the economy and labour market to moderate enough to allow rate cuts in 2027, pencilling in May and August as the likely timing, but said a November hike would reflect near term inflation persistence rather than a materially stronger growth outlook. This article was written by Eamonn Sheridan at investinglive.com.
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