Commonwealth Bank economists now anticipate that the Reserve Bank of Australia (RBA) will raise the official cash rate by 0.25 percentage points to 4.85% at its next meeting in November. This shift comes as inflation pressures mount, driven by higher energy costs, the global AI investment boom, and domestic capacity constraints. Belinda Allen, Head of Australian Economics at CommBank, described the potential November hike as an 'insurance hike' to mitigate these inflationary forces.
RBA Governor Michele Bullock confirmed on Wednesday that inflation is likely to exceed earlier projections, citing higher global energy prices due to Middle East conflicts, as well as rising costs from the AI boom and extreme weather. Domestically, the labor market is tighter than previously thought, and weak productivity is limiting economic growth without fueling inflation. These factors led CommBank to revise its forecast from a hold to a rate increase.
The latest quarterly inflation figures matched CommBank's expectations, with trimmed mean inflation at 3.7% annually. Despite signs that four rate hikes this year are already slowing the economy, such as moderating household spending and falling housing prices, the RBA appears committed to further tightening. Market pricing for a November rate hike now stands at about 90%, according to CommBank's analysis.
Looking ahead, CommBank expects the economic impact of higher rates to become more apparent in the coming months, with weaker growth, softer home prices, and rising unemployment. The RBA is likely to keep rates on hold in December and February to assess the effects before considering further action. Rate cuts are penciled in for August and November 2027, though timing remains uncertain.