The Reserve Bank of Australia is expected to raise its cash rate by 25 basis points to 4.60% at its meeting on Tuesday, September 29, with 33 of 34 economists anticipating the move, according to a Reuters poll published just after 6 a.m. Sydney time on Friday — an early wake-up call for anyone on the local rates desk. The increase would lift the cash rate — the RBA's main policy lever, which underpins borrowing costs across the economy — to its highest level since late 2011, when the rate stood at 4.75%. The 34 economists were surveyed between September 17 and 24.

Poll highlights:

• 33 of 34 economists expect the RBA to lift the cash rate by 25 basis points to 4.60% on September 29, the highest since late 2011.
• It would be the fourth hike of 2026, bringing cumulative tightening this year to 100 basis points.
• 26 of 31 economists see the cash rate still at 4.60% at end-December; a minority expect 4.85%.
• A month ago, nearly all economists expected a September hold and a peak of 4.35%.
• Trimmed mean inflation held at 3.6% in July, against the RBA's end-year forecast of 3.3%.
• The median forecast has the cash rate back at 4.35% by end-2027, but views split widely from Q3 2027.

The consensus has swung sharply in a short space of time. A month ago, nearly all economists expected the RBA to stay on hold in September, and median forecasts had the cash rate peaking at 4.35%. That view has been overtaken by firmer inflation pressure since the August meeting and by Governor Michele Bullock's doubts that policy is restrictive enough to return inflation to the bank's 2% to 3% target band.

Core inflation is the central worry. The trimmed mean measure, the RBA's preferred gauge, held at 3.6% in July, well above the top of the bank's 2% to 3% target band, while the bank's own forecast has it easing to 3.3% by the end of the year — still short of a return to the band. The economy also grew a little faster last quarter than the roughly 2% pace the RBA estimates it can sustain without adding to price pressures, even as momentum faded.

Paul Bloxham, HSBC's chief economist for Australia and New Zealand, is one of five respondents expecting another hike the following quarter. He argued that the RBA is growing impatient with above-target inflation and needs to show that getting inflation back to target within its late-2027 horizon comes first. Above-expectations growth, disappointing productivity and a July monthly inflation reading that ran too hot prompted him to switch to a September hike call, and he expects core inflation to beat forecasts in the coming months.

Among the major domestic banks, CBA, NAB and Westpac see the cash rate ending the year at 4.60%, while ANZ expects 4.85%. NAB said the risks are clearly skewed towards a follow-up move in November, though that is not its base case. All four major Australian banks now forecast RBA hike to 4.60% on September 29.

Beyond this year, economists broadly expect the cash rate to stay at 4.60% through mid-2027, before views diverge sharply from the third quarter of that year. The median forecast has the rate back at 4.35% by the end of 2027, within a wide range running from 4.85% at the top to 4.10% or lower at the bottom.

How markets are positioned:

With 33 of 34 economists expecting a hike, Tuesday's move is close to fully priced. The Australian dollar is therefore more likely to react to the RBA's statement and Governor Bullock's press conference than to the decision itself. If the bank signals it is open to hiking again, the AUD could get a boost and front-end yields could rise as markets price in a November move. A clear "one and done" message could instead take some of the tightening premium out of the currency. Australia's policy rate would also rise further above most of its G10 peers, which supports the AUD on the crosses, especially AUD/JPY and AUD/NZD.

Fresh labour market data is unlikely to stand in the way of next week's hike, even though the RBA's objectives cover both price stability and full employment. The Australian dollar was little changed after the latest jobs report showed the jobless rate hitting 4.6%, its highest since 202, with participation outpacing the jobs beat (Australia jobless rate hits 4.6%, highest since 2021, participation outpaces jobs beat).

For now, Tuesday's decision — and the tone of the accompanying statement — will shape whether markets treat 4.60% as the peak of the tightening cycle or merely a waypoint, with a further move as early as November still on the table for some forecasters.

Source: ForexLive — https://investinglive.com/central-banks/sticky-core-inflation-pushes-rba-towards-its-highest-cash-rate-since-2011/