Banks align on November hike to 4.85%; February move becomes bigger risk

All major banks now anticipate a November rate rise, making the decision nearly fully priced in. Market attention turns to the RBA's forward guidance and whether February remains a possibility, which could affect the Australian dollar and front-end yields. If the RBA sounds hawkish and keeps February on the table, that would be supportive for the currency; a signal of a pause would probably cause it to lose ground. The key external factor is energy: an intensified Middle East conflict that pushes up oil would add weight to further tightening, whereas a US-Iran agreement after the midterms would reduce it.

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Instead of wondering if the RBA will raise rates next week, banks are now questioning when the cycle will end, and the response could rely just as heavily on the Middle East situation as on home-grown inflation.

Summary:

• CBA and ANZ have both called for an RBA increase on November 3, bringing the cash rate to 4.85%, and Westpac repeated its support for a rise.
• That would be 2026's fifth hike, pushing the cash rate to a point not reached since 2008.
• CBA referred to it as an "insurance hike" designed to protect against threats from the Middle East, the AI investment surge, and limited capacity.
• ANZ pointed to market services inflation, which recorded its highest annual rate since 2024.
• Westpac views a February hike as a growing possibility, albeit not its baseline projection, whereas CBA anticipates no change in December and February.
• The main external risks are an escalation in the Middle East, a potential US-Iran agreement, and an abrupt global deceleration.

Australia's largest banks now expect the RBA to increase rates once more at its November 3 gathering, following inflation figures that almost guaranteed a fifth rise in 2026, and attention has already swung to whether the tightening period will continue into the following year.

On Wednesday, Commonwealth Bank of Australia and ANZ both predicted a November rate rise, taking the cash rate to 4.85%. Westpac reiterated its stance in favor of a rate increase. The RBA's September action brought the cash rate to a 15-year peak, and an additional hike would bring it back to a point witnessed in 2008.

CBA depicted the likely rise as an insurance hike, meant to act as a guard against inflationary threats from the Middle Eastern strife, the AI-led worldwide investment expansion, and strained domestic capability. CBA added that the RBA had become markedly more hawkish after employing a softer tone at its September meeting. ANZ said the numbers firmed up the rationale for a rise, highlighting the services area where market services inflation recorded its most powerful annual increase since 2024. The RBA closely tracks that indicator because it mirrors home-grown stress and stays relatively free from worldwide fluctuations like oil costs.

Westpac stated inflation is higher than both the RBA's goal and what its August projections suggested, noting that some of the upward perils recognized then, especially energy, have been partly realized. Westpac believes most Monetary Policy Board members will support an increase, although some might object. The financial institution observed that the RBA minimized a recent increase in unemployment, and Governor Michele Bullock told a Senate hearing that core inflation indicates the job market is tighter than earlier assessed. Westpac disputed that analysis, contending it assigns insufficient importance to the delay between employment and prices and to shocks not tied to labor expenses.

Opinions diverge for the period after November. Westpac's baseline outlook does not include additional hikes, but it sees the chance of another move, probably in February, as having increased. CBA predicts the RBA will pause in December and February, with potential reductions in late 2027, at the expense of lower housing prices and increased joblessness. An economist labeled a December increase as a high-risk possibility, but not the central projection, and suggested the RBA will more likely halt after the coming week to evaluate the effects.

Energy continues to be a major variable. Westpac indicated that the Middle East conflict might intensify and send energy costs even higher, or diminish if the US and Iran strike an agreement following the midterm elections. Westpac also noted the possibility of an abrupt worldwide economic deceleration, which New Zealand's central bank mentioned on Wednesday, and said that risk does not seem to be on the RBA's radar.

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It's been a big 2026 for the Reserve Bank of Australia, and it hasn't ended yet.