Three big banks now expect a November hike after hot inflation data, but Westpac's economists refuse to change their tune. Will they get it right this time?
Three of the Big Four banks have torn up their Reserve Bank of Australia (RBA) rate forecasts in the space of 24 hours, tipping a cash rate hike before the year closes after a hotter-than-expected inflation print – while Westpac has again positioned itself as the lone holdout on the sidelines.
The big shift comes just weeks after the RBA held the cash rate at 4.35% at its August meeting, with all four majors then unanimous in expecting a pause.
That was until Wednesday’s inflation print, which showed headline inflation easing to 3.5% in July, down from 3.8% in June, while trimmed mean inflation – the RBA's preferred underlying measure – held at 3.6%. That trimmed mean figure was unmoved for a second straight month and came above forecasts, let alone the central bank's own 2–3% target band.
ANZ was first to change tack when economists Adam Boyton and Jack Chambers declared the RBA would now lift the cash rate by 25 basis points in November.
NAB chief economist Sally Auld placed her bank's forecast under review within hours of the data landing, warning the risk was skewed toward an even earlier move.
"July CPI data showed inflation running hotter than the RBA expected in early August, and the RBA has repeatedly signalled in recent weeks that the Monetary Policy Board would act if upside risks to inflation were realised," Auld said. "The risk is biased towards an additional hike in November, especially if activity data shows resilience in coming months."
Why the big banks changed their tune
The scale of the shift is best captured by Commonwealth Bank of Australia (CBA), which just a day earlier had been comfortable calling the tightening cycle over.
Economist Belinda Allen now says CBA expects a 25-basis-point hike in November, taking the cash rate to 4.6%, with risk skewed toward an earlier move in September.
"We change our call and now expect the RBA to hike the cash rate by 25bp in November to 4.60%," Allen said this Thursday. "We judge the broad-based upside surprise in the July CPI as having crossed that threshold and materially increased the likelihood of another RBA hike."
Allen pointed to a string of pressures feeding into the bank's revised view: capacity constraints still evident in the economy, businesses passing through higher costs linked to an ongoing Middle East supply shock, a Fair Work Commission award wage decision flowing into labour-intensive services pricing, and households continuing to spend by drawing on savings, offset accounts and redraw facilities despite higher borrowing costs.
Housing was the single largest contributor to July's inflation read, rising 5% over the year, according to the ABS.
NAB senior economist Taylor Nugent flagged a similar concern, noting the hot print put inflation on track to exceed the RBA's own forecast for the September quarter.
Deutsche Bank's Australia chief economist Phil O'Donaghoe went further still, abandoning a prolonged-hold call entirely in favour of a hike as soon as September, describing July's trimmed mean result as "intolerably high”.
Markets moved just as sharply: interbank futures were reportedly pricing a roughly 78% chance of a hike by November, up from under even odds before the data was released.
Westpac's case for standing still
Westpac is now the outlier. Senior economist Justin Smirk says the bank's base case remains an RBA hold for the rest of 2026, arguing the inflation surprise – while real – doesn't yet clear the bar for tighter policy.
"The July CPI did come in hotter than expected and while the risk of a November rate hike has increased, we still expect the RBA to remain on hold this year," Smirk said. He pointed to a more benign picture beneath the headline number: new dwelling costs and rents came in broadly as expected, with the housing downturn limiting builders' pricing power even as trade material costs rose.
The upside surprise, Smirk argued, was concentrated in durable goods such as motor vehicles and household items, and in household services like restaurants and domestic travel – categories he linked partly to the timing of sales periods and rising semiconductor prices, rather than a genuine broadening of price pressure.
Westpac has also acknowledged the risk of a November hike but points to a labour market and wage growth that have both come in softer than the RBA had forecast, as reasons the central bank can afford to hold its nerve.
Market services inflation remains above target, Smirk conceded, but a cooling jobs market reduces the odds the RBA pulls the trigger in November.
It's a familiar position for Westpac's economics team, which stood apart from its rivals on predicting an August rate rise. Westpac ultimately got that call wrong – but will the second time be the charm? We’ll find out on 29 September, when the RBA meets yet again to determine the next course of action.
