Australian government bond yields surged for a third consecutive day following inflation data and hawkish minutes from the Reserve Bank of Australia's August meeting. The yield on policy-sensitive three-year notes rose seven basis points to 4.67 percent, reaching its highest level in over a month.
Traders now fully price a 25-basis-point rate increase at the RBA's November meeting, a sharp shift from roughly 48 percent probability earlier this week. Markets assign roughly 50-50 odds to a hike at the Sept. 28-29 meeting.
The move reflects rapid recalibration of rate expectations after Wednesday's inflation report signaled persistent price pressures. RBA minutes from August had already flagged the board's low tolerance for sustained higher inflation.
Economists at major Australian banks abandoned forecasts of no further tightening this year. Belinda Allen of Commonwealth Bank predicted a quarter-point hike to 4.6 percent in November, with risk of an earlier move in September. "Tighter monetary policy is needed in the Australian economy," Allen said.
ANZ Bank and Goldman Sachs economists also revised forecasts to expect an RBA rate increase in November. Both flagged September as a risk scenario. Deutsche Bank's Phil Odonaghoe went further, forecasting a September hike and characterizing underlying inflation as "intolerably high." National Australia Bank's Sally Auld switched to a September call, noting the risk remains "biased towards an additional hike in November, especially if activity data shows resilience."
These moves would build on the RBA's earlier 2026 tightening. The central bank raised rates at its first three meetings this year, fully unwinding a 2025 easing campaign and returning the cash rate to 4.35 percent.
The tightening cycle began in response to resurgent inflation that predated the energy shock from the U.S.-Iran conflict. Australia's economy has grown more susceptible to inflation due to sluggish productivity over the past decade, lowering its potential growth rate.
Some economists maintain hold calls. Westpac stated that while a November hike remains a risk, it is not their base case. HSBC's Paul Bloxham noted the RBA still treats monthly CPI figures as only a "partial signal indicator," citing the central bank's view that monthly data will take a couple of years to become fully reliable. Bloxham pointed to weak growth and declining housing prices as additional factors in the outlook.
