The RBA hikes interest rates again. But will this be the last one?

If you won anything at the races today, you may want to save some of your new-found cash for that mortgage repayment. The Reserve Bank of Australia just hiked interest rates by another 25 basis points to 4.35%. The hike is the first after four consecutive pauses at 4.1% - and it may not be the last one for the year either. 

In its monetary policy decision handed down today, the Bank flagged that inflation remains too high and that it won't rule out more hikes down the road.

But for all the Bank's hawkish talk, not everyone on the street (or in the market) thinks that we will see more hikes after today's meeting. Even before today's meeting, the rates market was already pricing in a long-term hold on interest rates.

In this wire, we'll take you through the key highlights of the RBA's November interest rate decision and what investors need to keep a close eye on moving forward.

The top three quotes

The Board was always going to wait for the incoming data to change their mind. Then, the data (and the forecasts) did:

"Since its August meeting, the Board has received updated information on inflation, the labour market, economic activity and the revised set of forecasts. The weight of this information suggests that the risk of inflation remaining higher for longer has increased," the statement reads.

Most of the body of the statement remains unchanged. It continues to acknowledge that high inflation makes life difficult for everyone, the labour market is tight, and housing prices continue to march higher. Crucially, this sentence is still the same:

"To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case," the statement reads.

That stands decidedly at odds with Australian long-run inflation expectations data, which suggests said expectations are at their highest levels in more than a decade.

The third quote is a small but important change to its last line, which some participants are already saying is a sign they don't want to hike one more time:

"Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks," the statement reads.

It's this last change that has likely sent bond yields tumbling, the Australian dollar lower, and equities higher. The pros call it a "dovish hike". You can call it a "relief rally".

And the quote which was left out...

The final important quote is actually one which does not exist in the statement. Last month, the following quote was at the bottom of the statement:

"The recent data are consistent with inflation returning to the 2–3 per cent target range over the forecast period and with output and employment continuing to grow. Inflation is coming down, the labour market remains strong and the economy is operating at a high level of capacity utilisation, although growth has slowed," last month's statement read. 

That line is not in today's statement, suggesting the forecasts for economic data have been revised - perhaps significantly. We'll know how significant when the Statement on Monetary Policy is released this Friday.

4.6% (and beyond?)

At one end of the spectrum, some economists think one more rate hike still won't be enough to bring inflation back down to target. Even if the RBA has set itself an end-of-2025 target for 2% inflation, some experts think it won't have that much patience. 

Russel Chesler from VanEck is one of those. He called for the RBA to go one more today - and then some:

“If rates are increased today there is still a high probability that this will not be enough to bring inflation completely under control. The RBA will be monitoring data releases very carefully over the next few months to see if this and the past rate increases have had the desired effect. There is still a real chance the RBA will need to push rates to 4.6% or above," Chesler said. 

Sean Langcake, Oxford Economics' Head of Macroeconomic Forecasting in Australia, went one better. Langcake argued that another hike is not only plausible in December - but in February as well if it doesn't elect to go now:

"The Board may well elect to wait for the Q4 CPI data and raise again in February – we see this as being as plausible as back-to-back hikes in November and December," Langcake wrote.

GSFM's Stephen Miller agrees, telling me that he would give a "65%" probability to the RBA hiking one more time after today. 

Even AMP's Shane Oliver admits there is still a "40%" chance of another rate hike in this current cycle. Having said that, Oliver says the RBA should have been finished with hiking rates some time ago.

One more and done

Most of the economics community don't share the view that another hike is needed, including all of the Big Four banks. 

ANZ argues the latest hike should a) be the last and b) keep interest rates there for as long as another year.

"Beyond the November meeting, we expect the RBA to return to an extended pause. While 4.35% should mark the peak in the cash rate, there is a risk it could tighten beyond that. Any easing remains a very long way off," economist Adam Boyton wrote.

Barclays and the Bank of America team agree. Barclays said "We think the hiking cycle is over and the next move from the RBA will be a cut as growth comes under significant pressure" - though it did add that a cut may not come until the end of 2024. 

Meanwhile, the Bank of America had this to offer:

"We do not see this tightening of policy as a resumption of the hiking cycle given aggregate demand is slowing and the transmission of hikes is yet to be fully felt," they wrote last week. 

Nomura, once the most hawkish house on the street, also thinks the RBA is done:

"We keep our RBA cash rate profile unchanged. Another hike is still possible, but our central case is that the tightening cycle has ended, and we forecast a modest easing cycle to commence around mid-2024," strategist and economist Andrew Ticehurst wrote in a note to clients.

Signal or Noise alumni, and Market Economics MD Stephen Koukoulas was one of the few who (incorrectly) predicted today's RBA decision would be a pause. In his post-decision video posted to X (Twitter), he argued the hike was based on forecasts rather than "what is happening day to day".

"The critical point is the 3.5% inflation forecast at the end of 2024 and the 3% at the end of 2025... It reminds me a lot of the famous Dr Lowe decision to not hike rates back in late 2021/early 2022 when it was based on its forecasts. It was based on forecasts, not on the harsh reality. I hope Michele Bullock hasn't made the same mistake again," he said.