The Reserve Bank of Australia (RBA) is now twice as likely to hike interest rates for the fourth time this year, according to market forecasts. One major bank is already predicting a hike next month, while another has warned of a potential hike later this year.
Markets are now placing a nearly 30 per cent chance of an interest rate hike at the RBA’s next meeting in August, an increase from 16 per cent two weeks ago. According to ANZ, the probability of a hike by November has doubled to 80 per cent over the same period.
ANZ has warned it is not ruling out a potential November interest rate hike by the central bank, which would take the cash rate up to 4.6 per cent.
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Consumer confidence rose just 0.3 points last week, according to the latest ANZ-Roy Morgan data.
ANZ economist Sophia Angala said a jump in the “time to buy a major household item” subindex was largely offset by weaker confidence in personal finances and the economic outlook due to the re-escalation of conflict in the Middle East.
“While our base case remains for the cash rate to stay at 4.35 per cent until H2 2027, we do not rule out the risk of further inflationary pressures to push the RBA to increase the cash rate in November, assuming the Monetary Policy Board leaves the cash rate unchanged at its August meeting,” Angala said.
The renewed US-Iran conflict has sent Brent crude back above $US90 a barrel for the first time since early July, with the conflict entering its 10th day and shipping through the Strait of Hormuz constrained.
Commonwealth Bank chief economist Luke Yeaman said the bank expects the conflict will drag on for at least several weeks or possibly longer in the current dynamic.
The major bank still expects the RBA will be on hold for the rest of 2026, with two rate cuts expected in 2027. But there is a risk further hikes could be needed.
“If we see a prolonged closure of the strait and a big jump in oil prices, that will feed through to higher inflation, but it will also slow growth. In the short term that could mean the case for one further rate hike is higher,” Yeaman told The Guardian.
“But calls for multiple … rate hikes are a little overblown.”
Westpac is expecting the RBA will hike rates in August, with a follow-up hike in September still its base case but less certain.
It then expects rate cuts will start in August 2027, with a “relatively tentative pace of rate cuts of 25 basis points per quarter”.
