CBA, ANZ move call of cash rate hike to next week

CommBank and ANZ are now on board with NAB's call of a Reserve Bank cash rate hike at next week's monetary policy board meeting.

On Monday morning, CommBank brought forward its call to September, from November, while ANZ added another hike to its outlook, forecasting increases in both months.

Economists from the two big banks cited the escalation of conflict in the Middle East and recent communications from senior Reserve Bank officials in their cases for bringing forward their predictions.

Oil prices behind the shift

CommBank's update on Monday morning noted the increased prices of oil and refined products raising the immediate risk of higher inflation as well as "second-round pass through" of higher fuel costs to other goods and services. 

The lift in oil prices, now over $100 a barrel, has also driven financial markets to price in around a 90% chance of a cash rate increase in September.

The odds had been around 30% before the release of the July CPI data which showed inflation remained sticky.

ANZ said it was the Reserve Bank's tendency to view oil prices as "much more of an inflationary shock than a growth shock" as the bank's reason for now calling two more cash rate increases.

Hawkish tone from RBA officials

The other big driver of the changed outlooks is recent communications from senior Reserve Bank officials, including Governor Michele Bullock, her deputy, and another assistant governor.

Both banks noted none took the opportunity to dampen expectations of a September cash rate increase.

Last week, Ms Bullock cited a list of inflationary risks before a federal government committee, including the Middle East conflict, the AI boom, severe weather events, as well as feedback from companies who were passing on higher input costs in their pricing.

She said "some of these upside risks to inflation appear to be materialising", interpreted as a trigger for the RBA to lift the cash rate this month.

ANZ noted none of the officials stressed the importance of waiting for key quarterly inflation data, due the week before the November meeting, before moving the cash rate.

This has been the tendency of the monetary policy board ahead of recent rate changes.

ANZ said this timing was likely to be a factor in a split vote for a September cash rate increase, as occurred in the March cash rate decision when there was a 5-4 vote.

But CommBank was firm in its prediction of a unanimous decision. 

CommBank wait and see on November increase

Yet while ANZ was strident in its case for two more cash rate increases, CommBank was more circumspect.

It acknowleded the arguments to hike in September would not be one-sided, citing a slowing economy, the labour market shifting back to balance, and the property downturn. 

"At 4.6%, monetary policy is restrictive and will see those with a mortgage facing a higher mortgage rate than seen since 2011 and 25 bp [basis points] above the peak seen ahead of the 2025 cutting cycle," the update said.

CommBank said while there are risks of another cash rate increase in November, it will to see what happens with a possible US-Iran deal around oil supplies as well as third-quarter inflation data, due on 28 October.

A strong trimmed mean quarterly CPI number (1% or above) would be "challenging" for the RBA to ignore regardless of the price of oil, CommBank said. 

So when are rates coming down?

Both banks' views of an easing in the cash rate in 2027 remain unchanged, although CommBank now believes the cutting cycle will start later.

It sees 50-basis points of cuts, starting in August 2027 (pushed back from May) but says there will be considerable uncertainty around the timing.

ANZ is sticking with its first 25-basis point cut in November 2027 following by another in February 2028.

"Given the rapid re-emergence of inflation after the prior easing cycle, we expect the RBA Board will be slow and cautious when it comes to eventually cutting rates," ANZ said.

The Reserve Bank monetary policy board will next meet on the cash rate on 28-29 September.

Its November meeting is scheduled for 2-3 November, with the rate decision to be announced on Melbourne Cup Day.