RBA: Rate Hike Widely Expected, but Deutsche Bank Tips Surprise Hold

What happened

The Reserve Bank of Australia (RBA) is set to announce its latest monetary policy decision on Tuesday (November 3, 2026), with markets and economists overwhelmingly expecting a fifth rate increase this year. Out of 32 economists polled by Reuters, 31 forecast a quarter-point hike that would take the cash rate to 4.85% from 4.60%, its highest level in nearly two decades. Australia’s big four banks and JPMorgan are among those expecting a hike, citing signals from senior RBA officials that inflation is not yet under control. Markets are pricing in around an 85% chance of a move after September-quarter inflation ran at an annual 3.7%, well above the bank’s target.

In contrast, Deutsche Bank stands alone among major forecasters in expecting a hold. Its chief economist for Australia, Phil O’Donoghue, argues that inflation is tracking the RBA’s own forecasts, unemployment has already risen to 4.7%, and the full percentage point of hikes delivered so far is biting. He believes the board can wait until December, when it will have fourth-quarter inflation data and a clearer view of oil prices after the US midterm elections. Deutsche forecasts Brent falling to $90 a barrel by early next year. O’Donoghue has also urged the board to reach its own conclusion rather than follow the market “echo chamber,” pointing to the Reserve Bank of New Zealand’s surprise hold last week.

This meeting is a forecast meeting, so the decision will come with an updated Statement on Monetary Policy and new projections for inflation, growth, and unemployment. Governor Michele Bullock’s press conference will follow the decision.

Why it matters

The RBA's decision is crucial for the Australian economy and for the perception of how central banks are tackling global inflation. A widely expected rate hike would reinforce a hawkish monetary stance and the RBA's determination to control prices. Conversely, an unexpected hold, as suggested by Deutsche Bank, would indicate greater concern for economic growth and the cumulative impact of previous increases, potentially signaling a pause or even the end of the tightening cycle. The RBA's communication, especially regarding the need for further tightening, will be key to guiding market expectations.

Market impact

• Interest rates and bonds: If the RBA raises the rate by 25 basis points, Australian short-dated bond yields tend to rise, reflecting tighter monetary policy. An unexpected hold, however, would likely cause short-dated bond yields to fall as the market re-evaluates tightening expectations.
• AUD and FX: A rate hike, being largely priced in, might have a limited impact or even lead to a modest appreciation of the Australian dollar (AUD). However, the RBA's forward guidance on further tightening will be the main driver. An unexpected hold, on the other hand, would likely cause a significant depreciation of the AUD, as the market would be caught by surprise.
• Equities: A rate hike could put pressure on Australian equities, especially sectors sensitive to financing costs like technology and real estate, though the impact might be mitigated if the hike is already priced in. An unexpected hold could be viewed positively by the equity market, easing concerns about the cost of capital.
• Commodities: Australia is a major commodity exporter. The RBA's decision might have an indirect impact on commodity prices if it affects global growth perceptions or demand for risk assets, but the direct effect tends to be limited.
• Brazil: The direct impact on Brazil is limited, but the RBA's decision contributes to the global macroeconomic scenario. A more hawkish move could reinforce the perception that global central banks remain focused on combating inflation, which might indirectly influence expectations for the Copom and the Selic, although internal dynamics are the predominant factor.

What to watch

Investors should closely monitor the RBA's decision and, crucially, the updated Statement on Monetary Policy and new projections for inflation, growth, and unemployment. Governor Michele Bullock's press conference will be essential for understanding the central bank's view on the future path of monetary policy and the need for further tightening. Any signals regarding data dependency or policy flexibility will be closely scrutinized.

Scenarios

Base Case (85% chance): The RBA hikes the rate by 25 basis points to 4.85%. Focus shifts to forward guidance on future hikes, with AUD and bond yields reacting to the signals. Risk Scenario (15% chance): The RBA holds the rate. This would be a significant surprise, leading to AUD depreciation and a fall in short-dated bond yields as the market re-evaluates the central bank's stance.

Original source: ForexLive (InvestingLive). For information only, not investment advice.