RBA Nov rate hike bets surge to over 50% after Hauser warning on inflation

 Odds of a Reserve Bank of Australia interest rate hike in November rose sharply on Wednesday after Deputy Governor Andrew Hauser warned the inflation outlook was “materially worse” in the coming months.

Central bank data aggregator RateProbability, which tracks overnight index swap market pricing, showed a roughly 51% chance that the central bank will raise interest rates by 25 basis points to 4.85% during its early-November meeting.

The probability of a hike stood at 22% on Tuesday. 

Goldman Sachs analysts, shortly after  Hauser’s comments, said it now expects a 25 bps hike in November, compared to prior expectations for a hold.

The jump in expectations came chiefly after Hauser warned that Australia’s inflation outlook had worsened, with upcoming third-quarter consumer price index inflation data likely to confirm this trend. 

He noted that while the Australian job market had cooled in recent months– with unemployment rising to 4.7% in September– this was unlikely to be reflected in inflation.

He flagged increasing upside risks to inflation from surging oil and gas prices, plus rising costs associated with the artificial intelligence industry, which ramped up global electronics prices. 

A November rate hike would be the RBA’s fifth such move this year, as the bank embarked on an aggressive tightening cycle to offset a year-long resurgence in inflation. 

Hauser warned that high inflation was becoming increasingly entrenched in Australian businesses, and that this trend could require higher rates. 

Australian CPI inflation rose 4% in August, remaining well above the RBA’s 2% to 3% annual target. CPI data for September and the third quarter is due next week. 

The RBA will issue its rate decision on November 2.