RBA Preview: Forecasts from 10 major banks, 50 bps rise is possible on upside surprises in inflation

The Reserve Bank of Australia (RBA) will announce its next monetary policy decision on Tuesday, November 1 at 03:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of 10 major banks regarding the upcoming central bank's decision.

The RBA will likely hike the cash rate by 25 basis points although a 50 bps move is still on the table, given the most recent inflation estimates. 

ANZ

“The Q3 acceleration in CPI is expected to see the RBA lift its forecast for headline inflation for the full 2022 year to more than 8%. We think the equivalent forecast for trimmed mean inflation will lift to around 6.6% YoY. This shifts the narrative about Australia being on a different inflation pathway from other developed countries. The shift in this narrative has caused us to adjust our policy expectations for the RBA. We have pushed that up to another 125 bps, with the RBA no longer expected to pause in December. After consecutive 25 bps rate hikes this week and December, we see a further 75 bps of tightening over the first half of 2023 which will take the cash rate target to a revised peak of 3.85% in May(up from 3.6%). Absent a sharp negative external shock, we don’t think the RBA will be in a position to ease policy for some time. We have 50 bps of rate cuts penciled in for H22024.”

Westpac

“The RBA will lift the cash rate by 50 bps, to 3.10%. This is a non-consensus view – most commentators anticipate a move of 25 bps. It is significant that Q3 inflation data was much higher than anticipated. The 1.8%qtr, 6.1%yr increase in trimmed mean inflation was a shock result. It demands a more urgent response from the RBA. With inflation higher for longer the concern is that strong inflationary psychology may become entrenched.”

Standard Chartered

“We expect the RBA to hike the cash rate by 25 bps to 2.85% from 2.60% previously. Given the high frequency of RBA meetings, we think the RBA may keep to 25 bps hikes even though Q3 inflation surprised to the upside.”

UOB

“The latest Federal Budget, unveiled on 25 Oct, displayed strong fiscal discipline, which is crucial and consistent with RBA’s efforts to curb inflation. Notably, both headline and underlying inflation for 3Q22 came in higher than expectations. But we believe inflation will likely peak in 4Q22, in the absence of further significant global shocks. We are penciling in a 25 bps hike OCR to 2.85%.”

TDS

“The RBA made a judgment call in October and reduced the size of its rate hikes. However, the upside surprise in Q3 CPI cast doubt on the pivot though we think this adds upside risk to our terminal rate call rather than a return to 50 bps hike next month. The RBA will provide new forecasts and we expect downward revisions to growth and upgrades to its inflation forecasts.”

ING

“After the big upside miss to 3Q22 inflation, we think the RBA will have to return to 50 bps of tightening after it dropped to just 25 bps at the October meeting.”

SocGen

“We expect the RBA to increase the cash rate target from 2.60% to 3.10%, which means that it is likely to return to the 50 bps pace of tightening implemented from June to September after a one-off 25 bps hike in October. The upside surprises in the 3Q22 inflation data should be the main driver for the likely 50 bps hike, overwhelming other factors like the slowdown in employment and the stabilisation of global financial market conditions. The policy statement should continue to say that the RBA is resolute in its determination to return inflation to target while keeping the economy on an even keel. Meanwhile, we stick to our ‘terminal’ policy rate forecast of 3.60% at this juncture.”

NAB

“We expect the RBA to lift the cash rate by 0.25 bps to 2.85% but note that the AU Q3 Inflation data revealed high and broad-based inflation, setting up a tough choice for the RBA on Tuesday. Thus, a 50 bps will be considered and we see it as a material risk.”

Citibank

“We stick to our view of another 25 bps rate hike this week and further 25 bps hikes across December and February.  The RBA will also provide updates to Australian GDP and CPI forecasts. We expect a downgrade to 2023 GDP while raising the unemployment rate forecast. However, we do not expect the RBA to materially change the headline inflation forecast despite last week’s solid Q3 CPI data.”

Wells Fargo

“While headline CPI inflation surprised to the upside and reached 7.3% year-over-year in Q3, we still expect this 25 bps rate hike pace to continue in November. However, we now believe the RBA will extend its rate hike cycle beyond this year into 2023, with 25 bps rate hikes in November, December, and February to a terminal rate of 3.35%.”