RBA cash rate 4.35% stayed unchanged on Tuesday for a second straight meeting, but the board signaled it could still raise rates if upside risks appear.
The Reserve Bank of Australia kept the cash rate at 4.35% in a unanimous decision. According to a Commonwealth Bank of Australia research note, the outcome matched both the bank’s forecast and wider market pricing. The note said the economy has slowed broadly as the RBA expected, while the labour market has softened faster than it had anticipated a few months ago.
However, CBA said the statement carried a firmer tone than markets had priced. The board repeated that it will do what is needed to return inflation to target and said that could include another rate increase if upside risks materialise. CBA said that wording was more direct than the language used in June.
RBA Cash Rate 4.35% Guidance Hardens
Governor Michele Bullock said the board discussed both a hike and a hold at this meeting. In June, only a hold was considered, according to the source article. CBA said that shift showed the board wanted to keep its options open and avoid early market pricing for rate cuts.
The case for a hike focused on inflation that remains too high. It also reflected upside risk linked to the ongoing Middle East conflict. The source said the RBA remains alert to any further pass-through from that conflict into domestic prices.
Meanwhile, the updated Statement on Monetary Policy showed a lower starting point for inflation than the RBA had forecast before. Trimmed mean inflation was 3.6% in the year to the June quarter, below the 3.8% forecast in May. The RBA now expects it to slow faster and move toward the midpoint of the target band by December 2027.
Inflation and Growth Forecasts Shift
Headline inflation also came in below the earlier forecast. It printed at 3.9% in the June quarter, compared with a prior forecast of 4.8%, as the pass-through from the Iran conflict into fuel prices was milder than feared. Even so, the source said the RBA’s near-term quarterly trimmed mean forecasts will be key in judging whether upside risks are emerging.
Additionally, growth forecasts were revised modestly higher across the forecast period. The source said stronger assumed population growth and a large upgrade to business investment, especially data centre spending, supported that change. Unemployment forecasts also moved up by about 0.2 percentage points from May, reaching around 4.5% by the end of 2026.
CBA still expects the RBA to stay on hold for the rest of the year, with a November hike seen as the main risk if inflation or activity data surprise on the firm side.
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Source: InvestingLive
