RBA Set to Hike Interest Rates as Oil Prices and Inflation Risks Rise

The Reserve Bank of Australia (RBA) is expected to raise interest rates by 25 basis points next week, according to economists at Commonwealth Bank of Australia (CBA). CBA's Head of Australian Economics Belinda Allen stated that a combination of higher oil prices, stronger-than-expected economic data, and increasingly hawkish signals from the RBA have shifted the balance towards an earlier move.

The RBA had previously been expected to hike interest rates in November, but market expectations have now shifted substantially. A September rate rise is now about 90% priced by financial markets, compared with roughly 30% before the July inflation figures.

Allen noted that market pricing alone would not determine the RBA's decision, but said leaving rates unchanged could carry risks if the central bank's inflation concerns continued to grow. Recent economic data has remained stronger than the RBA expected, including inflation figures and GDP growth.