Deutsche Bank Sees RBA Lifting Rates 25 Bps to 4.60% on Sept. 29

Q: With core inflation refusing to budge, will the RBA shock the market with a rate hike despite easing headline numbers?

A September rate hike would not be a shock, but it is still not the base case. The key reason is that headline inflation eased to 3.5% in July from 3.8%, while the RBA’s preferred trimmed mean measure stayed stuck at 3.6%. That matters more for policy. It suggests underlying price pressure is not cooling fast enough, even as the top-line number improves. The details strengthen the case for keeping policy tight. Housing was the biggest driver, up 5.0% over the year, with new dwellings rising 5.7% and rents 3.6%. Electricity was still up 6.1% annually, and transport inflation re-accelerated as fuel jumped 7.5% after earlier falls, reflecting higher oil prices and the partial unwinding of fuel excise relief. Those are the kinds of broad and persistent pressures the RBA watches closely. Economists have responded by lifting the odds of another move. Deutsche Bank now expects a 25 basis-point hike to 4.60% in September, and KPMG and Oxford Economics have warned inflation could stay above target for longer. Still, market pricing shows traders think a hold remains more likely next month, at about 63%, with a 37% chance of a hike. A move by November is seen as more likely. So the RBA would not be “shocking” markets if it raised rates, but it would be moving earlier than the market’s central expectation. The July data increased the risk materially; they did not make a hike the clear outcome.

3 articles · Updated · ABC News · Aug 26

Deutsche Bank reversed its call after July inflation data and now expects the RBA to raise the cash rate by 25 basis points to 4.60% at its Sept. 29 meeting.
July CPI slowed to 3.5% from 3.8%, but trimmed-mean inflation held at 3.6% and came in hotter than markets expected, keeping pressure on the central bank.
Other economists were less definitive: BetaShares put the chance of a September hike at 30% to 40%, while KPMG also backed a quarter-point increase and Indeed still saw no further rise this year.
LSEG pricing still implied a 63% chance of rates staying on hold next month, though markets now see roughly a 60% chance of a hike by November as inflation risks persist.