RBA holds cash rate at 4.35pc for second meeting, flags scope to hike again – analyst take
The decision was fully priced and unanimous, so the market reaction sits less in the outcome than in the tone. CBA reads the Board's strengthened conditional guidance, that it will hike further if upside risks materialise, as a deliberate signal to prevent markets from getting ahead of themselves on rate cut timing, even as the underlying disinflation trend remains intact. The bank's own view is that the RBA stays parked at 4.35% for the rest of the year, with a November hike as the main two sided risk if inflation or growth data surprise to the firm side. Terminal cash rate pricing has been volatile through the year, reflecting swings in sentiment around the Iran conflict, labour force data and fiscal settings, and CBA's framing suggests that volatility is likely to persist into the August, September and November CPI and GDP releases. Two rate cuts are still pencilled in for 2027, but CBA flags the Board may prove more cautious about easing than in prior cycles given inflation's resurgence last time rates were cut.
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The RBA didn't hike, but it made sure everyone knows it still can.
Summary:
- RBA Monetary Policy Board held the cash rate steady at 4.35% for a second consecutive meeting, a unanimous decision matching CBA and market expectations
- The Board strengthened its guidance, stating it will keep doing what's necessary to bring inflation back to target, including further hikes, if upside risks materialise, language CBA reads as more explicit than June
- Trimmed mean inflation printed at 3.6% annually in Q2 26, below the RBA's earlier 3.8% forecast, giving policymakers a better starting point even though inflation is still expected to sit above the midpoint of target until late 2027 into 2028
- Governor Michele Bullock said a rate hike was actively discussed at this meeting, unlike June when only a hold was on the table, and described a further hike as "quite possible" given persistent Middle East linked inflation risk
- CBA continues to expect the RBA on hold through the rest of 2026, with a November hike the key risk, while maintaining two rate cuts in its 2027 forecast, in May and August
- Unemployment forecasts were revised higher to around 4.5% by end 2026 and 4.8% by mid-2028, while GDP growth forecasts nudged up on stronger population growth and a pickup in data centre related business investment
- Key upcoming data includes July CPI on 26 August, July labour force figures on 20 August and GDP on 2 September, all of which will help determine whether the Board's flagged upside risks are eventuating
The Reserve Bank of Australia left the cash rate unchanged at 4.35% on Tuesday for a second consecutive meeting, a unanimous decision that matched both Commonwealth Bank of Australia's own forecast and broader market expectations, according to a CBA research note. The hold reflects an economy slowing broadly in line with the Bank's expectations, alongside a labour market that has softened more quickly than anticipated a few months ago.
Despite the hold, the tone of the accompanying statement carried a harder edge than markets had priced. The Board reiterated it will do what is necessary to return inflation sustainably to target, explicitly including further increases to the cash rate should upside risks materialise, phrasing CBA describes as more direct than the equivalent language used in June. Governor Michele Bullock confirmed that both a rate hike and a hold were actively discussed at this meeting, a contrast with June, when only a hold was on the table following three hikes earlier in the year. The case for hiking centred on inflation still running too high and on upside risk tied to the ongoing Middle East conflict, with the Bank remaining alert to further pass through from the conflict into domestic prices. Bullock said it remained quite possible another hike would be needed, a framing CBA interprets as an effort to preserve the Board's optionality and head off premature market pricing of rate cuts.
The updated Statement on Monetary Policy showed a lower starting point for inflation than previously forecast. Trimmed mean inflation printed at 3.6% over the year to the June quarter, below the 3.8% the RBA had pencilled in as recently as May, and is now expected to ease more quickly than before, approaching the midpoint of the target band by December 2027. Headline inflation was revised down more sharply, printing at 3.9% in the June quarter against a prior forecast of 4.8%, as the pass through from the Iran conflict into fuel prices proved milder than feared. Even so, the RBA's near term quarterly trimmed mean forecasts, an implied run rate stepping down from 0.84% to 0.64% across the four quarters from Q3 2026, will be the key reference points determining whether the Board's upside risks are eventuating.
Growth forecasts were revised modestly higher through the forecast period, helped by stronger assumed population growth and a substantial upgrade to business investment, particularly data centre spending, while unemployment forecasts moved up roughly 0.2 percentage points from May, reaching around 4.5% by the end of 2026. CBA continues to expect the RBA to remain on hold through the balance of the year, with a November hike the primary risk if inflation or activity data surprise to the firm side, while maintaining two rate cuts in its 2027 forecast profile, in May and August, contingent on unemployment reaching or exceeding estimates of full employment and trimmed mean inflation slowing to quarterly rates near 0.6 to 0.7%. The bank cautioned the Board may prove more guarded heading into any future cutting cycle, given inflation's resurgence in the second half of last year followed the RBA's previous rate cuts.
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2026 Reserve Bank of Australia dates:
This article was written by Eamonn Sheridan at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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