Australia's major banks are revising their forecasts for the Reserve Bank's cash rate following a significant rise in inflation. The consumer price index increased by 3.2% annually in the September quarter, up from 2.1% in June. This surge in inflation has diminished expectations for a rate cut in November, with economists reassessing their predictions for future cash rate movements.

The Commonwealth Bank of Australia (CBA) has changed its previous forecast, now expecting the cash rate to remain steady at 3.6% without further cuts in this cycle. Belinda Allen, head of Australian economics at CBA, noted that higher inflation and increased demand, primarily driven by consumption and housing, have influenced this decision. "[This] will see the RBA conclude that the economy needs the cash rate to remain in slightly restrictive territory," she stated. Allen emphasized that the cyclical upswing in the economy has occurred more rapidly than anticipated, allowing businesses to recover from previous margin pressures.

The prospect of a November rate cut is now considered unlikely. CBA had previously predicted one final cut in February 2026, reducing the cash rate to 3.35%, which was seen as closer to neutral. Allen remarked, "It would take a material move higher in the unemployment rate, together with more moderate inflation prints, to bring the RBA back to the cutting table."

Westpac has also put its interest rate forecast under review after the latest inflation data. The bank had anticipated three more cuts this cycle, including one in November. Westpac's chief economist, Luci Ellis, indicated that the bank is reassessing the cash rate outlook due to the inflation outcome and changing domestic demand. She now expects the RBA to maintain the cash rate next week and expressed uncertainty about future easing. Ellis stated, "Even a February cut is far from certain now, given the size of the upside surprise this quarter."

Looking ahead, Ellis mentioned that the RBA would need to wait for more data before making any decisions. She noted, "The earliest the Monetary Policy Board will be in a position to get more comfort on inflation is with the next quarterly print ahead of the February 2026 meeting."

In contrast, the National Australia Bank (NAB) maintains its outlook for a future rate cut, with chief economist Sally Auld suggesting that a cut may occur around mid-2026. Auld emphasized that patience will be required from mortgage holders as the RBA seeks to gain confidence in the underlying drivers of inflation. She stated, "Hopefully, by the time we get closer to the middle of next year, they'll have enough confidence that inflation's sustainably around the middle of the RBA's target band to deliver one final rate cut for the cycle."

NAB's forecast suggests that the next interest rate cut could happen in May 2026. Auld pointed out that the recent inflation data confirmed the RBA's concerns regarding housing and services.

ANZ has also reiterated its expectation for one more interest rate cut, maintaining that the cash rate will remain unchanged until at least February 2026. Earlier this week, RBA Governor Michele Bullock acknowledged that a 0.9% increase in core inflation for the September quarter was a significant deviation from the central bank's forecast. ANZ economists noted that the trimmed mean inflation exceeded both market and RBA expectations, with the two-quarter annualized trimmed mean reaching 3.4%, the highest rate since Q2 2024.

The Reserve Bank's next interest rate announcement is scheduled for November 4, coinciding with the release of updated forecasts in its quarterly Statement on Monetary Policy.