What to expect from the RBA meeting in November 2023

RBA governor, Michele Bullock, has been talking tough on inflation, saying in a speech at the Commonwealth Bank Global Markets Conference that the RBA board “will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation.”

In a recent appearance before a Senate Economics Committee, Governor Bullock described the CPI figures as “a little higher than we'd been forecasting at our August statement on monetary policy”. However, she declined to speculate on how the figures could influence the November meeting, saying that “I wouldn't like to say more or less likely, we're still looking at it.”

“We are wary and we don't know if the job has been done yet. Even though we haven't raised interest rates since our last interest rate rise in June, we've made it very clear that we might need to go again. We have not ruled that out.”

New forecasts for the cash rate’s future are expected to be released on 10 November 2023 in the latest RBA Statement on Monetary Policy.

Federal Treasurer, Jim Chalmers, has played down inflation fears, pointing out that the figure has moderated for the third consecutive quarter. And while inflation remains volatile, this can partially be attributed to overseas conflicts affecting oil supplies and therefore petrol prices.

“It's really important to recognise that the annual inflation number that we have received today is in line with expectations, it's in line with the Treasury forecasts in the most recent budget, and it doesn't change the Treasury's expectations for when inflation will return to the target band.”

The Treasurer declined to make predictions or pre-empt the decisions to be made by the RBA Board, though he told journalists the latest CPI figures “don’t materially change the inflation outlook going forward.”

As recently as last month, ANZ was forecasting that the RBA would keep rates on hold for the rest of the year. However, following the recent release of the quarterly CPI data from the ABS, ANZ’s economists have changed their tune, with a 25 point hike to 4.35% now being forecast for the November 2023 RBA Board meeting.

ANZ’s forecast comes off the back of the RBA governor’s recent “hawkish” rhetoric. Considering the latest CPI data it’s now possible that the RBA may need to back up its words with actions, and respond to the risk that inflation may not return to target within a reasonable timeframe.

However, ANZ has also said that a November 2023 rate hike is not certain, with longer term inflation forecasts potentially being unaffected by the recent CPI data.

ANZ is forecasting that the RBA will only hike the cash rate once in response to the latest CPI figures, though “it will retain a tightening bias and the risk of additional hikes is real.” And despite the RBA governor’s words paring pack hike expectations before the senate, the full context of her remarks means a rate hike in November 2023 is “more likely than not”.

ANZ is also predicting that the RBA’s next cut to the cash rate may not occur until November 2024, starting a cutting cycle that could end in May 2025.

The Commonwealth Bank has also changed its tune on cash rate forecasts, having previously predicted a hold in November 2023.

Following the CPI figures released in October 2023, CBA is now predicting a 25-point hike to 4.35% in November 2023, citing the RBA’s “hiking bias” and “low tolerance” for a slower return of inflation to target.

However, CBA also concedes that a rate hike in November 2023 is not certain, and that the RBA may choose to wait for even more data to become available before deciding whether to change the cash rate, such as the Wage Price Index which is due in mid-November 2023.

"A difficulty for the RBA is that some of the most significant drivers of current inflation, including rents, insurance, fuel and utilities are unlikely to be dampened by further hikes. Even so, this means monetary policy must run harder against the components of the basket it can more directly influence."

Rates are expected to remain at this peak until September 2024, when CBA has ‘pencilled in’ the start of an easing cycle. This is expected to see 75 points of cuts over the rest of 2024, followed by a further 75 points in the first half of 2025, bringing the cash rate down to 2.85% by mid-year.

NAB is the only one of the big four banks that already had a November 2023 rate hike on the cards before the release of quarterly CPI data in October 2023.

“We continue to see the RBA shifting back towards neutral from mid-2024 with inflation clearly returning to target and unemployment up near 5% on our forecasts.”

NAB also expects the RBA will keep rates on hold until the second half of 2024, to be followed by an easing cycle lasting from August 2024 to March 2025.

However, speaking in an FX Market Update webinar, NAB senior FX strategist, Rodrigo Catril, said:

"We need to be mindful that typically the RBA doesn't do just one hike. And if you think you're moving away from your inflation goal, a lift of 25 basis points may actually not be enough to get you back to where you want to be."

Westpac had also previously predicted that rates would stay on hold in November 2023, but changed its mind following the release of the quarterly CPI data in October 2023, and now believes that a 25-point hike to 4.35% is on the cards.

"In our view, the Q3 CPI report highlighted that the pace of disinflation was not as fast as the RBA were hoping for, and the risk of a longer return to target – relative to the RBA’s current forecasts – is therefore material."

However, a November hike is by no means set in stone. Some of the factors listed by Westpac that could potentially support keeping the rate on hold include:

• Reduced risk of price-wage spiral
• Turning in the labour market
• Uncertainty generated by conflict in the Middle East
• Tightening in global financial conditions
• Some of the near-term strength in services inflation could be a passing through of award wage increases that probably won’t be repeated, as well as non-standard timing of increases in health insurance
• Business services have been showing cost pressures easing, and growth in the real economy is relatively weak

Despite these influencing factors, Westpac describes this as a “hard case to make”:

“There is not enough in the way of new data between the November and December meetings, and waiting would be inconsistent with the clear language from the Governor’s speech this week about not hesitating if the outlook changes.” 

Looking ahead, Westpac is forecasting that the cash rate could start to fall by August 2024, and keep falling until November 2025.

To help you stay up to date with the latest changes to the national cash rate, as well as any adjustments to interest rates for home loans and savings accounts that follow, be sure to visit the RateCity RBA Rate Tracker hub.