Key Points

• The RBA delivered on expectations for a rate rise at its November meeting – taking the cash rate to 4.35%. Reflecting recent data, the staff’s inflation outlook has been revised up and we now see one further rise as likely to balance the risks, pencilling in a 4.6% rate peak in February, though December is live.
• As expected, the re-acceleration in underlying inflation in Q3 as well as ongoing resilience in consumer spending and the labour market has forced a material upwards revision to the RBA’s forecasts – not just in the near term but through the profile. Unemployment now peaks lower and inflation returns to the top of the target range only at the end of 2025. The full staff forecasts will be released Friday.
• Recent communication from Governor Bullock has made clear the Board was already at the limit of its tolerance for inflation remaining above target. Given the revisions to the outlook, we expect the Board to form the view that a single 25bp adjustment to rates is not enough to mitigate the risks on inflation – seeing a further rise, most likely in February after the Q4 CPI.
• Looking further ahead, given the resilience of the economy and labour market thus far we now see rate cuts as unlikely to begin until November (previously August) with gradual cuts through 2025 and early 2026 to 3.1%, around the long-run neutral level.

For further details, please see the NAB Monetary Policy Update (7 November 2023)