RBA set to hike rates next week as energy costs spiral

THE Reserve Bank of Australia will raise its key interest rate next week as surging rising energy prices crystallise upside risks to inflation, Bloomberg Economics said, warning of a possible further hike in November. 

“Repeated hawkish signals suggest the RBA’s already-thin patience is about to run out,” James McIntyre, who previously thought the bank would stand pat for the rest of 2026, said in a research note. Further escalation in energy prices “is likely to push firms to pass higher input costs on to consumers.” 

McIntyre’s switch is the latest in a wave of rate-call changes. ANZ Bank now expects an additional hike in September, adding to its call for November.

UBS Group AG adjusted its base case to back-to-back rate increases in September and November. Both see the key rate at 4.85 per cent, which would be the highest level since 2008. Commonwealth Bank of Australia brought forward its rate-hike call to next week from November, citing Brent oil sitting above US$100 per barrel. 

The RBA was in the vanguard of developed-world policy tightening as it raised rates at its first three meetings of the year to clamp down on renewed inflation pressures.

In recent weeks the Federal Reserve, Bank of Japan and European Central Bank have all boosted borrowing costs as energy prices surged and with little prospect of an early end to the Middle East conflict.

The RBA’s nine-person board meets on Sep 28-29, and governor Michele Bullock said on Friday that some of the upside risks the bank has highlighted “appear to be materialising.”

She will sit for a fireside chat at 1 pm in Sydney, while independent director Iain Ross will speak in Melbourne at 5:30 pm today.

McIntyre pointed out that Australia’s per capita diesel consumption is among the highest in the world and freight companies will pass higher diesel prices on to firms through fuel surcharges. 

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Separately, RBA Assistant Governor Sarah Hunter also set out some of the issues the board confronts in a podcast released early Tuesday.

“There’s the conflict in the Middle East and what it’s done to oil prices, if you filled your car up recently, you’re probably noticing that,” she said.

“The board were pretty clear that even though they didn’t hike the cash rate, they are still very concerned about inflation,” Hunter said, referring to the previous decision to keep rates unchanged at 4.35 per cent. “We think that the risk to inflation is skewed to the upside.”

Money markets are pricing about a 90 per cent chance the RBA will hike by a quarter-percentage point to 4.6 per cent next week. BLOOMBERG