RBA Preview November: 25 bps hike expected as inflation outlook worsens

The Reserve Bank of Australia (RBA) is widely anticipated to increase interest rates by 25 basis points on November 2, as inflationary pressures continue to pose a challenge. According to forecasts, the RBA expects to raise its benchmark rate to 4.85%. The ASX 30-day interbank cash rate futures indicate a 78% probability of a rate hike in November, representing the central bank's fifth hike this year.

The aggressive tightening cycle began as the RBA noticed inflation running above its 2% annual target. Rising energy prices, disruptions from the Middle East conflict, and limited domestic capacity contributed to the upward trend in Australia's inflation. ING analysts stated that the data released in September gave the RBA greater confidence that inflation is not yet declining steadily, which strengthens the argument for another rate increase.

RBA Governor Michele Bullock's comments have further solidified expectations for a November rate hike, especially as she suggested that the central bank will evaluate if its four rate hikes this year were sufficient to curb inflation.

The RBA's decision will likely impact Australian stocks, as higher rates tend to suppress local liquidity and dampen investment flows into stocks. Notably, banking and wealth management companies stand to benefit from the higher rates, which benefited the ASX 200, trading up 1% thus far in 2026. The Australian dollar has also gained from higher rates, with AUD/USD trading up 5.4% in 2026.

As the RBA continues to tighten monetary policy, the Australian dollar is expected to further strengthen, especially with increasing bond yields aligning with the central bank's tightening cycle.