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Is the RBA poised to hike under new governor Bullock?

7 minute read

Economists are widely in agreement about the RBA’s October decision, but the interest rate outlook for the remainder of the year remains cloudy.

The Reserve Bank of Australia (RBA) is once again widely expected to hold interest rates at 4.10 per cent at its October meeting, the first to be held under new governor Michele Bullock.

The central bank is anticipated to maintain a tightening bias and will likely weigh up both holding and hiking by 25 basis points (bps), as it has done in its last three “on-hold” decisions.

But as to whether the RBA hands down a rate hike in the coming months, particularly once additional data on inflation and wages becomes available, views remain firmly mixed.


Scott Solomon, co-portfolio manager of the T. Rowe Price Dynamic Global Bond Strategies, said there was “little impetus” for Ms Bullock to immediately disrupt the path laid out by her predecessor Philip Lowe via a hike at the October meeting. However, hikes at subsequent meetings are seen as a distinct possibility.

“Looking ahead, we are concerned that the RBA will have to hike again as the economy remains robust: home prices up, employment high, government spending resilient with capacity for more,” Mr Solomon said.

“In other words, Bullock’s job won’t be any easier than Philip Lowe’s and will face the same struggles as her central bank counterparts: navigating appropriate policy response in a data-dependent world.”

The key data points that the RBA will be watching closely during the final months of the year are the third quarter consumer price index (CPI) due out on 25 October and the third quarter wage price index due out on 15 November.

Banks weigh in

ANZ economists have predicted that the RBA will deliver a “hawkish pause” in October. Looking further ahead, the economists noted that the RBA’s next move could be a hike rather than a cut if inflation comes in higher than forecast and holds above the 2 to 3 per cent target.

“For now, we still see the RBA on an extended pause, but signs inflation might be running a little higher than expected are consistent with the risk we have been highlighting, namely if the RBA moves this year or early next rate rises are more likely than cuts,” they said.

“Market pricing has also shifted in that direction, although we think that reflects developments offshore as much as strictly domestic concerns.”

Westpac chief economist Bill Evans, who has asserted that an October hold is “certain”, also acknowledged the strong market expectations for a hike as part of his rate outlook.

According to Mr Evans, the market is currently pricing in a 40 per cent chance of a hike in November and a 90 per cent chance of an increase by March next year.

“Despite this market pricing, which is also indicating no rate cuts until 2025, we expect that the cash rate will remain on hold until August next year when the first rate cut can proceed,” he said.

Commonwealth Bank chief economist Stephen Halmarick suggested that a pause at the October meeting is the best course of action for the RBA. In CBA’s view, the hurdle for another hike remains high and rates will likely stay at 4.1 per cent for an extended period.

“The risks to that view over the remainder of 2023 is, however, to the upside,” Mr Halmarick said.

“This is especially so given the recent substantial increases in the cost of oil will feed into the CPI in coming months and there is uncertainty as to what extent the Q3 23 Wage Price Index data will show an acceleration in both the quarterly and annual pace of wages growth.

“Conversely, by the time we get to the November and December RBA Board meetings we expect to see a further weakening in domestic consumer spending and a slowdown in the pace of global economic growth; keeping the RBA on hold into 2024.”

In contrast to the other big four banks, NAB is of the view that the RBA will hike one final time this year after the third quarter CPI has been released.

“NAB sees the RBA hiking rates in November to 4.35 per cent, and markets should be thinking about whether one more is enough given the labour market remains tight,” said NAB economist Tapas Strickland.

HSBC’s central case is for a hold in October, according to chief economist Paul Bloxham, but with one further hike delivered before the end of the year.

“We have one more 25 bps hike pencilled in for Q4, likely at the November meetings after the Q3 CPI print, although they could choose to wait for the Q3 wage price index figures and hike in December,” he said.

“We expect that next week the RBA board will discuss the possibility of hiking by 25 bps in October but opt to hold steady as it waits for more information on prices.”

AMP also expects the RBA will announce a hold for October. While the firm does not expect, with certainty, another rate hike will be handed down in future months, AMP deputy chief economist Diana Mousina acknowledged the possibility of an increase in December.

“I think the Reserve Bank will be worried about the wages story, and the next set of wages data comes out in November, so I think that they’ll wait to see the wages data and then they’ll make their decision. So that would mean a December potential rate rise,” she said.

Treasurer’s view

Meanwhile, Treasurer Jim Chalmers has downplayed the impact that the recent monthly spike in inflation will have on the RBA’s decision making.

“Obviously I’m not going to pre‑empt the way that they come at this but historically what the Reserve Bank tries to do is to understand the overall direction of travel,” he recently told ABC’s RN Breakfast.

“Quarterly inflation peaked before the election last year, the March quarter, in annual terms around Christmas time. And so the direction of travel has been really clear – inflation is moderating overall. We’ll get these bumpy and lumpy figures, month to month from time to time, but it’s moderating overall. The direction of travel is pretty clear.”

The Treasurer noted that, while the government would like inflation to moderate faster, the direction of travel has been “really clear”, moving down from its peak at the end of 2022.

“Overall, I think the Reserve Bank would look at the fact that inflation has come off substantially since its peak last year,” he said.

“If you look at some of the issues like consumption and household saving, and some of this other data that they monitor closely and I monitor closely, you can see that these interest rate rises that are already in the system are biting pretty hard.”

Is the RBA poised to hike under new governor Bullock?

Economists are widely in agreement about the RBA’s October decision, but the interest rate outlook for the remainder of the year remains cloudy.

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Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.

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