And they’re off. The big four banks and markets back a fifth hike after hot inflation, but split on whether 4.85% marks the peak
The Reserve Bank of Australia (RBA) is overwhelmingly expected to raise the cash rate by 25 basis points to 4.85% when its Monetary Policy Board hands down its decision at 2:30pm AEDT today. The move would be the fifth rate rise this year and take the cash rate to its highest setting in 18 years.
The board has already lifted rates four times this year, including September’s rise to 4.6%, after which brokers questioned whether rates had peaked. At the time, the board signalled it would lift the cash rate further if needed.
All four major banks – Commonwealth Bank, NAB, ANZ and Westpac – expect the hike.
Pricing in financial markets points the same way. Half an hour after the announcement, RBA Governor Michele Bullock will hold a media conference at 3:30pm AEDT, sandwiched around the 3pm start of the Melbourne Cup.
Why a November cash rate hike is all but locked in
The case for a hike rests on inflation data released last week. According to the Australian Bureau of Statistics (ABS), headline consumer price index (CPI) inflation rose to 4.3% over the 12 months to September. That was up from 4% in August.
The trimmed mean measure, which strips out the most extreme price moves and which the RBA watches most closely, rose 1% over the September quarter and 3.7% over the year. That quarterly result came in above the RBA’s own August forecast of 0.8%.
Senior RBA officials have since signalled the board’s concern. Deputy Governor Andrew Hauser said on 20 October that Australia’s inflation outlook was “materially worse” than the bank had expected. Bullock then told a Senate committee on 28 October that some upside risks flagged in August had materialised and that inflation was likely to run above the bank’s August base case. She added that the labour market looked “a little tighter than we had previously judged”, despite the recent rise in unemployment.
Markets have priced the hike accordingly, much as they did before September’s widely expected move to 4.6%, although the estimates vary. CBA’s analysis put market pricing for a November increase at around 90%. In a note this morning, CBA’s currency strategists said a 25-basis-point hike was roughly 80% priced.
A hike may not be unanimous. CBA economists noted there were “no guarantees” of a unanimous decision after four rate rises since February. Westpac chief economist Luci Ellis expects the RBA to keep a hawkish tone, although further hikes beyond next week are not currently the bank’s base case.
ANZ is the most hawkish of the four. It describes a move to 4.85% as a “necessary increase” and sees a material risk that the cash rate reaches 5.1% in December or February 2027. It estimates that rate would bring inflation forecasts to 2.5% by mid-2028.
What could still derail the hike?
Not every signal points to tightening. The ABS reported that unemployment rose to 4.7% in September as employment fell by 39,300. That came a month after unemployment rose to 4.6% in August without derailing September’s hike. Trend unemployment held at 4.6%, and the ABS flagged that survey changes may have affected the monthly figure.
Energy prices are another wildcard. Westpac has said a November hike is its base case unless the Middle East conflict is resolved or energy costs fall significantly. Overnight, Brent crude fell more than 7% to about US$104.77 a barrel after US President Donald Trump said Iran wanted a deal to end the war. One overnight move is unlikely to change today’s outcome, but it adds uncertainty to the outlook beyond November.
What a 4.85% cash rate means for brokers
Lenders have passed recent hikes on quickly. All four majors applied September’s 25-basis-point increase to variable home loans from 9 October, ending sub-6% variable rates among the big four. Westpac’s lowest rate rose from 5.99% to 6.24%.
Another full pass-through would squeeze borrowing capacity and house prices further and add to repayment pressure on clients already absorbing four rises.
The RBA will also release its updated Statement on Monetary Policy forecasts this afternoon, including for inflation. Those projections, and Bullock’s tone at 3:30pm, are likely to decide whether 4.85% is the finishing post or a stop on the way to 5.1%.
