Mayank Bansal, CFA
Mayank Bansal is a CFA Charterholder and heads the Equity Research team at Kapitales Research, with over 5 years of experience analysing global equity markets. He leads fundamental, data-driven research combining rigorous financial analysis with macro trends.
Rate-Hike Bets Climb After RBA Deputy Flags a Tougher Inflation Outlook
Highlights
Introduction
The Reserve Bank of Australia (RBA) has raised its cash rate four times this year, to 4.60%. A fifth move is now back in play. On Wednesday morning, deputy governor Andrew Hauser told an investment conference in Sydney that the inflation outlook was markedly worse than the August forecasts. Markets reacted quickly. Pricing for a hike at the next meeting rose to about 41%, and the S&P/ASX 200 is at 8,804.7, down 0.14%.
Hauser's Message
According to Mr Hauser, this year's rate rises are starting to bite. Hiring is cooling and household spending growth is soft. Even so, he said price pressures have built. Oil is roughly a third dearer than the RBA assumed in August. He also pointed to cost pressures linked to the AI investment boom.
His bigger worry is expectations. Business contacts suggest more firms now treat inflation of 3% to 3.5% as normal. Both figures are higher than the RBA aims for, which is 2% to 3%. He framed the board's task as a difficult trade-off. It must weigh further action on inflation against the risk of hurting a softening jobs market. He did not commit to a move in November.
Rate Expectations Shift
Before his remarks, markets put the odds of a November hike at about 27%. Those odds have since risen to about 41%. Only last week, they had dipped below 20%. A move in November would put the cash rate at 4.85%, a peak unmatched since 2008. Traders also expect another lift by mid-2027 at the latest.
Bonds moved too. Three-year government bond yields are higher. The Australian dollar is at US$0.7024, up 0.26%.
Share Price Movement
The S&P/ASX 200 opened higher but could not hold its gains. It is at 8,804.7, down 0.14%.
Property trusts are among the weaker groups. The S&P/ASX 200 A-REIT index is down 0.52%. Goodman Group (ASX: GMG) is at AU$25.88, down 2.38%.
The banks are mixed. The financials index is at 9,396.5, up 0.17%. Shares in Commonwealth Bank of Australia (ASX: CBA) are barely moved, slipping 0.01% to AU$155.58. National Australia Bank Limited (ASX: NAB) is at AU$39.51, up 0.79%. ANZ Group Holdings Limited (ASX: ANZ) is at AU$38.90, down 0.22%.
Consumer names are slightly lower. The consumer discretionary index is at 3,728.3, down 0.03%. Wesfarmers Limited (ASX: WES) is at AU$79.33, down 0.31%. Woolworths Group Limited (ASX: WOW) is at AU$41.45, down 0.38%. The technology index is the weakest sector, at 1,609.3, down 3.66%.
What Investors Should Watch
Conclusion
A warning from the RBA's deputy governor has revived the prospect of a fifth rate rise this year. Inflation pressures have built since August, even as the economy cools. Hike odds have risen sharply, and short-term yields are higher. Property trusts and consumer stocks are softer, while the banks are mixed. The board will weigh next Wednesday's CPI print closely when it meets in early November.
Note- All data presented is based on information available at the time of writing.
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