Markets raise September rate-hike odds after RBA officials’ parliamentary testimony

Financial markets now put a 95 per cent probability on the Reserve Bank raising its cash rate in September, according to LSEG data. RBA officials said persistent supply pressures, inflation expectations and a return to higher long-term interest rates were shaping their outlook, while economists remain divided over a possible November move.

Financial markets have sharply increased their expectations of a Reserve Bank of Australia interest-rate increase at the board’s September meeting. LSEG data cited by ABC News put the probability of a September rise at 95 per cent, while markets assigned a 37 per cent chance to a further increase in November.

The RBA’s Monetary Policy Board is due to meet on September 28 and 29. Economists cited by ABC News expect the board to lift the cash rate to 4.6 per cent in September, although forecasts differ over whether another rise will follow. RBC economist Robert Thompson changed his forecast from November to September and said a second increase could take the rate to 4.85 per cent, while Capital Economics’ Marcel Thieliant said September now appeared likely to be the final increase.

Former RBA assistant governor Luci Ellis, now Westpac’s chief economist, said the bank’s internal signals suggested officials wanted to move, although she considered November a more tactically suitable timing. Thompson described September as nearly certain and November as the more disputed decision point, according to a note reported by ABC News.

RBA deputy governor Andrew Hauser said long-term real interest rates were probably closer to a more sensible level than they had been a year or two earlier. He also said rates were unlikely to remain at zero or near zero for an extended period, raising the question of whether borrowers had adjusted to a higher-interest-rate environment.

Governor Michele Bullock told the parliamentary Standing Committee on Economics that persistent increases in oil and fuel prices were making it harder for the bank to disregard supply shocks. She said businesses appeared more willing to pass on higher costs when they believed those increases would last, creating a risk that inflation expectations could become embedded.

Bullock also said supply shocks, particularly those linked to the Middle East, had worsened the trade-off between inflation and employment. She acknowledged that housing conditions had softened, but noted that prices remained about 50 per cent above early-2020 levels. Assistant governor Brad Jones said prices had fallen by 5 to 6 per cent in Sydney and Melbourne and by 1 to 2 per cent elsewhere, describing the declines as not overly material in the context of earlier gains.