Big Four Banks Diverge as CBA and Westpac Shift RBA Hike Forecasts

The landscape for RBA interest rate expectations has shifted significantly among Australia's 'Big Four' lenders, with the Commonwealth Bank (CBA) and Westpac now both forecasting a rate hike in September.

### The Shift Toward September CBA, the nation's largest lender, moved its forecast forward from November following recent public communications from the Reserve Bank of Australia. This update aligns with a similar stance taken by Westpac last Friday. According to reporting by the source, the revision was heavily influenced by RBA Governor Michelle Bullock’s testimony at the House of Representatives Standing Committee on Economics. While market expectations had allowed for a more balanced tone regarding growth and inflation, Governor Bullock signaled a hawkish outlook, stating that upside risks to inflation appear to be materializing.

### Differing Perspectives on the Board Despite the shared forecast for September, the two banks disagree on the internal cohesion of the RBA board. Westpac’s chief economist, Luci Ellis, noted that an RBA vote for a hike is unlikely to be unanimous. Conversely, CBA’s head of Australian economics, Belinda Allen, noted that while the bank expects a unanimous decision, the case for holding rates is not trivial. Ms. Allen highlighted that the economy is slowing, the labor market is rebalancing, and home prices are falling. At 4.60%, the current cash rate is already in restrictive territory, which is set to push mortgage rates to their highest levels since 2011.

### The Broader Banking Landscape With these shifts, the ANZ remains the sole institution among the 'Big Four' that still predicts the next rate move will occur in November. This pivot follows a week of focused public commentary from senior RBA officials, including Deputy Governor Hauser and Assistant Governor Hunter, who have raised alarms regarding the entrenched nature of inflation. Currently, market pricing places the probability of a September rate hike at 90%.