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Welcome to Bendigo Bank’s market update for November, with our views and forecasts for the economy and interest rates for the rest of this year and for 2027.

This month we’ll have a look at;
... The Cup Day RBA rate hike, and its likely consequences
... Recent volatility in stock and oil prices, ahead of the US mid-term elections,
... and the latest expectations for residential property prices.

The RBA board voted 6 to 3 to increase the official cash rate for the 5th time this year taking us to 4.85%, ahead of the timing we have outlined here and on our business insights website, but in line with our expectations of a ‘rates higher for longer, more drawn-out policy cycle’ than consensus, to deal with persistent inflation.

The fact that the RBA decision wasn’t unanimous highlighted just how complex the global backdrop and domestic conditions are, so time will tell if this less patient approach will be rewarded as the optimal timing, but the cash rate is now up to its highest level since the heady days of the GFC in 2008, and the big question now is whether any further policy tightening will be needed.

At first glance the statement and updated RBA forecasts did appear slightly less aggressive and hawkish, saying that ‘the cash rate can be increased further if needed’, so subject to ongoing data around jobs, inflation and spending a ‘rates on hold’ outlook is our suggestion going into 2027, but we still don’t anticipate rate cuts until much later than the market is currently implying.

The price of oil clearly remains a key variable for inflation and by extension for interest rates, with Brent crude almost reaching US$120 a barrel earlier this week before renewed hopes of a peace deal surfaced leading into the US
mid-term elections.

As a result, the oil price has fallen from this peak by more than 10%, but as the chart shows the price of diesel is still very elevated, which will take time to normalise even if the Middle East conflict is quickly resolved, either through diplomacy or otherwise.

The geopolitical tensions that have been the key driver of markets this year will no doubt evolve into the new year, but second order impacts of high energy prices take time to permeate consumer prices, so core inflation is likely to remain elevated.

Stock markets are also wary of any surprises in the US midterms possibly adding to recent volatility in tech stocks, where concerns around the payoff of the massive AI capital raisings and capex spend more broadly have come to the fore.

The tailwinds from AI investment continue to offset the headwinds from higher energy prices and resulting inflation, but this dynamic will test the market’s resolve.

Meanwhile residential property prices here continue to see a broadening of the decline to most capital cities and many regions, adding another degree of complexity to economic outlook.

Capital city prices are now down more than 7 ½ % peak-to-trough and appear likely to extend this decline to around 10-12% before a slow but steady recovery.

The previous largest decline on record of around 8 ½% is expected to be broken in the coming months, although resilient labour markets and an ongoing lack of supply should limit the downside.

In summary, the RBA cash rate is now likely to remain at 4.85% for some months and potentially for much of next year, which should see core inflation slowly return to around 3% but economic growth to slow further to only around 1% in real terms through 2027.

We continue to see unemployment slightly higher than the RBA’s forecasts but still only back up to levels seen in 2019 and continue to suggest that outperformance from our major trading partners amid the AI investment boom will to an extent help to soften the economic blow of adjusting to higher interest rates, maintaining business investment and underlying demand.

And that’s the market update from Bendigo Bank.

Welcome to Bendigo Bank’s market update for November, with our views and forecasts for the economy and interest rates for the rest of this year and for 2027.

This month we’ll have a look at;
... The Cup Day RBA rate hike, and its likely consequences
... Recent volatility in stock and oil prices, ahead of the US mid-term elections,
... and the latest expectations for residential property prices.

The RBA board voted 6 to 3 to increase the official cash rate for the 5th time this year taking us to 4.85%, ahead of the timing we have outlined here and on our business insights website, but in line with our expectations of a ‘rates higher for longer, more drawn-out policy cycle’ than consensus, to deal with persistent inflation.

The fact that the RBA decision wasn’t unanimous highlighted just how complex the global backdrop and domestic conditions are, so time will tell if this less patient approach will be rewarded as the optimal timing, but the cash rate is now up to its highest level since the heady days of the GFC in 2008, and the big question now is whether any further policy tightening will be needed.

At first glance the statement and updated RBA forecasts did appear slightly less aggressive and hawkish, saying that ‘the cash rate can be increased further if needed’, so subject to ongoing data around jobs, inflation and spending a ‘rates on hold’ outlook is our suggestion going into 2027, but we still don’t anticipate rate cuts until much later than the market is currently implying.

The price of oil clearly remains a key variable for inflation and by extension for interest rates, with Brent crude almost reaching US$120 a barrel earlier this week before renewed hopes of a peace deal surfaced leading into the US
mid-term elections.

As a result, the oil price has fallen from this peak by more than 10%, but as the chart shows the price of diesel is still very elevated, which will take time to normalise even if the Middle East conflict is quickly resolved, either through diplomacy or otherwise.

The geopolitical tensions that have been the key driver of markets this year will no doubt evolve into the new year, but second order impacts of high energy prices take time to permeate consumer prices, so core inflation is likely to remain elevated.

Stock markets are also wary of any surprises in the US midterms possibly adding to recent volatility in tech stocks, where concerns around the payoff of the massive AI capital raisings and capex spend more broadly have come to the fore.

The tailwinds from AI investment continue to offset the headwinds from higher energy prices and resulting inflation, but this dynamic will test the market’s resolve.

Meanwhile residential property prices here continue to see a broadening of the decline to most capital cities and many regions, adding another degree of complexity to economic outlook.

Capital city prices are now down more than 7 ½ % peak-to-trough and appear likely to extend this decline to around 10-12% before a slow but steady recovery.

The previous largest decline on record of around 8 ½% is expected to be broken in the coming months, although resilient labour markets and an ongoing lack of supply should limit the downside.

In summary, the RBA cash rate is now likely to remain at 4.85% for some months and potentially for much of next year, which should see core inflation slowly return to around 3% but economic growth to slow further to only around 1% in real terms through 2027.

We continue to see unemployment slightly higher than the RBA’s forecasts but still only back up to levels seen in 2019 and continue to suggest that outperformance from our major trading partners amid the AI investment boom will to an extent help to soften the economic blow of adjusting to higher interest rates, maintaining business investment and underlying demand.

And that’s the market update from Bendigo Bank.