Economists and experts have said the Reserve Bank will hold the cash rate on Tuesday, but borrowers have been advised to prepare for the possibility of future increases, and the board is unlikely to rule out further hikes.
Commonwealth Bank Chief Economist for Australian Economics Gareth Aird’s forecast indicated the rate would remain unchanged on Tuesday, and the statement on the decision will likely say the board is “neither ruling out nor approving anything” in terms of future moves.
If correct, the RBA board will leave rates at the current 12-year high of 4.35 per cent while it tries to bring inflation back to its 2 to 3 per cent target range, something it believes will be achieved by mid-2026.
“We expect the cash rate to remain unchanged and consider the possibility of any other outcome to be trivial,” he wrote.
‘We expect RBA Governor (Michele Bullock) to stick to the same script that has been used at every press conference in 2024; that is, the board will remain alert to potential upside inflation risks, while acknowledging that GDP growth is weak and the outlook is uncertain.’
Households and economists breathed a sigh of relief on Wednesday after the quarterly consumer price index for June rose to 3.8 percent from 3.6 percent.
The increase, while still above the RBA’s target range, was in line with the board’s forecast.
However, the all-important core inflation figure, or the trimmed average that strips out big price moves and core inflation forecasts, fell to 3.9 percent from 4 percent.
Interest rates are expected to remain unchanged, much to the relief of mortgage holders.
RBA Governor Michele Bullock is expected to hold rates on Tuesday
Tuesday’s cash rate announcement will also coincide with the release of its August quarterly Monetary Policy Statement, which will take into account the federal government’s $300 energy rebate.
CommBank’s Stephen Wu warned that the impact of repayments could cause the RBA to “revise downwards” headline inflation figures, but the forecast for trimmed average CPI is likely to remain unchanged.
“More specifically, we expect the board to maintain its June statement that ‘the path of interest rates that will best ensure that inflation returns to target over a reasonable time frame remains uncertain and the board is not ruling anything out,'” he wrote.
“While the board will have welcomed the latest inflation data, there is no need to deviate from the recent script. Indeed, it is too early to change tone.”
The RBA is not expected to rule out further increases in cash rates as it tries to bring inflation down to a 2-3 per cent target.
Although some economists have predicted a rate cut could come “before Christmas”, financial comparison site RateCity urged borrowers to prepare for the eventuality of a future increase, with inflation holding steady.
A 25 basis point increase in the cash rate would result in someone with a $500,000 mortgage shelling out an additional $75 on their monthly payments, and their payments would increase by a total of $1,285 since the cash rate began increasing in May 2022.
The calculations for a $750,000 mortgage mean your payments would increase by $112, or a total of $1,928, because rates have increased.
“(Wednesday’s inflation update) still fits within the RBA’s timetable for returning inflation to target by mid-2026, giving it more time to continue with its current plan,” said RateCity.com.au research director Sally Tindall.
“However, time is running out for the RBA. If Australia’s inflation rate does not start to come down soon or, worse still, continues in the wrong direction, the board will have to act.”
However, he said the likely hold will allow borrowers to prepare for a possible increase.
“If you haven’t accounted for the additional dollars from the Stage 3 tax cuts, put that money aside and store it in a safe place,” he added.
“If that money is already plugging a hole in your budget, now is the time to look for other ways to relieve the pressure.”
Before Tuesday’s announcement, Treasurer Jim Chalmers refrained from making predictions.
While he said inflation figures were “encouraging”, cost-of-living pressures remained high.
“We’ll know on Tuesday afternoon where they’ve come to and why. I’m respectful of them and I’m not trying to predict or preempt them or position them,” he told the Sunday Telegraph.
‘There were some encouraging numbers released on Wednesday and we’ve made some good progress since the election, but I recognise that inflation is still a bit sticky and persistent, so we didn’t get too carried away when they came out.
However, shadow treasurer Angus Taylor blamed the government for fuelling inflation through its “extra $315 billion of spending”.
“The RBA has only one tool: monetary policy. The government has a role to play, but Labor has not done so,” he said.
“Australia is at the back of the pack when it comes to fighting inflation: we are the only G10 country to have seen inflation rise compared to December. This is a criticism of the Albanese Labor government.”
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