
RBA Set to Implement 25 Basis Point Interest Rate Increase on Nov. 7
By Devayani Sathyan
BENGALURU – Australia’s central bank is set to increase its key policy rate by 25 basis points to 4.35% on Tuesday, following a period of steady borrowing costs during its last four meetings. This decision is driven by stronger-than-expected inflation, according to a Reuters poll.
Inflation figures exceeded expectations in the last quarter, catching policymakers by surprise and prompting financial markets to anticipate one more rate hike from the Reserve Bank of Australia (RBA).
While economists have been predicting a final rate hike this quarter since August, the most recent poll from October 30 to November 2 revealed near-unanimous agreement among participants for an increase.
If this hike occurs, it will mark the first adjustment under the leadership of RBA Governor Michele Bullock, who noted that the bank would not shy away from further hikes if there were significant upward revisions to inflation projections.
Nearly 90% of the economists surveyed—34 of 39—believe the RBA will raise its official cash rate to 4.35% on November 7, a level that hasn’t been reached since November 2011. Among the remaining economists, one forecasted a smaller hike of 15 basis points, while four anticipated that 4.10% would be the peak rate.
"The expectation has long been that the RBA would raise rates in November due to overly optimistic inflation forecasts for the latter half of the year," said Taylor Nugent, a senior economist at NAB. "The RBA had hoped to avoid further increases and aimed to minimize adjustments while targeting inflation, ultimately leaving them more vulnerable to rising economic risks than if they had acted sooner."
This anticipated hike comes at a time when many global counterparts, including the Reserve Bank of New Zealand, are maintaining a cautious approach.
All major Australian banks—ANZ, CBA, NAB, and Westpac—are predicting a 25 basis point hike from the RBA next week.
A strong majority of economists, 28 out of 39, expect rates to reach 4.35% by the end of 2023. Among the remaining forecasts, six predicted 4.60%, one anticipated 4.25%, and four projected no change from 4.10%.
Median forecasts indicate rates will stay at 4.35% at least until the end of June 2024, which is a quarter later than previous predictions.
"Currently, it looks like a 25 basis point hike is on the horizon, but the likelihood of further actions is certainly increased. If a hike occurs in November, another is more likely than any cuts in the near future," stated Madeline Dunk, an economist at ANZ.
Additionally, Australian house prices have rebounded to nearly previous highs, suggesting that the RBA’s policy tightening of 400 basis points has had limited effect on the robust property market.