ANZ has overhauled its cash rate forecast, while NAB has placed its outlook under review as July’s price data significantly reshapes the interest rate outlook.
Australia and New Zealand Banking Group (ANZ) now expects the Reserve Bank of Australia (RBA) to lift the cash rate by 25 basis points in November after July inflation figures came in stronger than expected.
The Australian Bureau of Statistics (ABS) reported that headline consumer price index (CPI) inflation eased to 3.5 per cent in the 12 months to July, from 3.8 per cent in June.
However, the decline masked persistent underlying price pressures, with trimmed mean inflation – the RBA’s preferred gauge – unchanged at 3.6 per cent annually.
Housing was the largest contributor to annual inflation, rising 5 per cent, followed by food and non-alcoholic beverages, up 3.2 per cent, and recreation and culture, which rose 2.6 per cent.
Inflation risks re-emerge as ANZ tips November hike
While the headline measure moderated, the stronger-than-anticipated underlying outcome pushed ANZ to change its cash-rate forecast, with the bank now predicting a November hike.
“Following the release of the July CPI data, we now expect the RBA to hike the cash rate 25bp in November,” ANZ said.
“In the minutes for the August Monetary Policy Board meeting, much of the discussion lingered on upside risks to the RBA’s updated inflation forecasts. In light of today’s inflation data, these risks are closer to crystallising.”
The bank said the concern for policymakers was the scope and composition of the July result, rather than the annual headline rate.
“The breadth and nature of the upside inflation surprise in July may also be a concern for the RBA,” it said.
“While the July data were uncomfortably high, we don’t think there is a strong enough case to justify a September hike.”
ANZ reiterated that it expected the central bank to use the November meeting to lift the cash rate once more to 4.60 per cent.
“As such, we think the RBA will hike the cash rate once more in November, to 4.60 per cent. This additional hike should be sufficient to slow activity enough to mitigate against further inflation risks,” the bank said.
NAB places rate forecast under review
The National Australia Bank (NAB) also said July’s CPI release had unsettled its policy outlook, describing inflation as stronger and more widespread than expected.
“The July print shows much stronger inflation than the RBA had been factoring in,” NAB said.
“We suspect residual seasonality could be driving some of the outsized July strength, but regardless, this is a particularly hot print.”
NAB said that its previous rate outlook of an extended hold at 4.35 per cent was now being reconsidered.
“For an RBA that already had little buffer, none of this is welcome news. NAB’s RBA call is under review,” it said.
CBA sees a less certain hold
The Commonwealth Bank of Australia (CBA) similarly said the July result was stronger than anticipated.
“The July CPI was stronger than expected. More importantly, underlying inflation was also stronger than expected,” CBA said.
The bank said the figures raised the possibility that the RBA would need to tighten monetary policy further.
“Today’s data does raise the risk that further monetary policy tightening will be required, particularly given recent RBA commentary around concerns over upside risks to inflation,” the bank said.
While CBA’s base forecast remains that the RBA will leave the cash rate unchanged, it said the July CPI result had reduced confidence that no further increases would be required.
“Our base case has been the RBA will stay on hold, nonetheless, today’s July CPI makes our RBA call of no more rate hikes less certain,” it said.
Westpac holds its ground
Westpac meanwhile has retained its expectation that the RBA will leave the cash rate unchanged for the rest of 2026, despite acknowledging that domestic inflation remained high.
“Domestic inflationary pressures remain elevated. The question is just how much is due to post financial year price adjustments and how much is a sustained increase in underlying inflationary pressure. The monthly CPI does not provide enough information to confirm this in either direction," the bank said,
Westpac said softer-than-anticipated labour-market and wage conditions remained central to its outlook, even as it conceded that a November hike could not be ruled out.
“However, both the labour market and wages are softer than what the RBA expected so while the risk of a November rate hike remains, this is not our base case and we expect the RBA to remain on hold this year," Westpac noted.
[Related: Majors flag rate-rise risk after ‘hawkish’ RBA minutes]
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