Economists debate whether November rate hike will be the last

Australia's four major banks are forecasting the RBA will increase the cash rate by 25 basis points on Melbourne Cup Day amid persistent price pressures and increasingly hawkish commentary from policymakers.

CBA and NAB were the last to join the fray, revising their call after the consumer price index (CPI) revealed inflation accelerated faster than expected in September. 

See also: All big four banks back a November rate hike

While economists have largely united around a Melbourne Cup Day rate rise, there is less agreement on whether the monetary policy board will tighten again in December or early 2027. 

Big banks converge on November hike but debate the peak rate

The latest inflation figures were the final nail in the coffin for 'hold' forecasts, with fresh ABS data showing annual inflation accelerated to 4.3% in September and trimmed mean rose to 3.6%.

On a quarterly basis, headline CPI rose 1.3% while underlying inflation increased 1.0%, overshooting RBA's August forecast of 0.8%.

This prompted both CBA and NAB to abandon their previous forecasts of a cash rate hold and join ANZ and Westpac in predicting a November hike.

Here's the latest RBA cash rate forecast from Australia's biggest banks:

Why 4.85% cash rate could be the peak

CBA expects the RBA to lift rates in November, although is uncertain the decision would be unanimous given back-to-back hikes. 

CBA head of Australian economics Belinda Allen had described November as an "insurance hike" to avoid entrenched inflation driven by global and domestic factors.

"Acting early and acting decisively should manage the risk of inflation being higher for even longer," Ms Allen said. 

Ms Allen cited the central bank's concerns about labour market conditions, weak productivity, high energy prices, and AI-driven investment keeping price pressures elevated for longer.

As at 29 October, financial markets had priced an 80% chance of a 25 basis point November hike.

According to NAB, the cash rate at 4.85% would place monetary policy around 150 basis points above neutral, consistent with restrictive monetary policy.

"Based on historical experience, a gap of this magnitude would leave the balance of risks to domestic monetary policy more balanced from here," NAB senior economist Taylor Nugent said. 

Both big banks believe higher rates will increasingly weigh on household spending, with CBA saying evidence of a slowdown is already emerging through weaker card spending.

NAB expects policymakers to pause after November, although note the central bank remains "a long way from declaring victory on inflation".

CBA similarly expects the RBA will remain on hold in December, but questions whether policymakers will ultimately judge four hikes this year to be sufficient.

"Recent RBA communications have been hawkish and suggest the answer is no. Inflation remains too high in their minds and risks continue to sit to the upside," Ms Allen said. 

CBA is forecasting rate cuts to be delivered in late 2027 (August and November) "if enough progress has been made". 

Why a December rate hike can't be ruled out

Others warn that persistent underlying inflation could keep the prospect of additional tightening alive well into 2027.

Recent comments from RBA Governor Michele Bullock have further strengthened the case for caution. 

Gov Bullock earlier told a Senate committee  that some of the upside inflation risks identified in August had already materialised and inflation was likely to run higher than the central bank's previous base-case forecasts.

Westpac has maintained its call for a November hike and, while further tightening is not its base case, has flagged increasing risk of a February rate rise if inflation fails to ease as expected. 

"While we still expect a hawkish tone in the RBA's communication until inflation has clearly turned down, further hikes beyond next week are not currently our base case," Westpac chief economist Luci Ellis said. 

ANZ, which has been hawkish in its forecasts, believes a move to 4.85% would be a "necessary increase" rather than what CBA calls an "insurance hike".

ANZ economists argue the RBA's updated November Statement of Monetary Policy is likely to show inflation returning to target only gradually over the coming years.

The bank estimates there is a "material risk" the cash rate ultimately reaches 5.10% in either December or February if policymakers become increasingly concerned about inflation.

"We estimate that a cash rate of 5.10% would produce an inflation forecast of 2.5% for mid-2028 and 2.4% at end-2028," ANZ said. 

However, the bank notes the case for further tightening is not one-sided, citing a higher unemployment rate and subdued economic growth. 

It expects elevated interest rates will keep downward pressure on house prices.