The Reserve Bank of Australia held its cash rate at 4.35 percent for a second consecutive meeting, citing a slowing economy broadly in line with its forecasts. The decision came after second-quarter inflation printed below expectations.
Governor Michele Bullock struck a hawkish tone at her post-meeting press conference, saying she personally believes it is "quite possible" rates may need to rise again. She confirmed the board discussed a hike at this month's meeting—a departure from June—partly because of renewed conflict in the Middle East.
The bond market repriced quickly. Three-year Australian government bond yields rose 2 basis points to 4.572 percent. Rate swaps now imply roughly a 50 percent probability of a hike in November and an 80 percent probability by early next year.
The RBA's updated forecasts project consumer price inflation easing to 3.6 percent by end-2026, down from 3.9 percent in the second quarter, then falling to 2.6 percent by end-2027—returning to the bank's 2 percent to 3 percent target band in the second half of next year. Bullock called that timeline "reasonable."
Economic data remain mixed. Housing has weakened sharply, with auction clearance rates falling, loan applications declining and sales slumping after a record boom. Consumer spending held up and the labor market continued to add jobs.
Policymakers flagged concern over oil-price pass-through into the broader economy, a risk amplified by the Middle East conflict. The RBA reiterated that aggregate demand must stay subdued to ease capacity pressures and said it would raise the cash rate further if upside inflation risks materialize.
The RBA has raised rates by 75 basis points this year, fully reversing the easing implemented in 2025.
Stephen Smith, a partner at Deloitte Access Economics, said the RBA's forecasts suggest the bank "increasingly feels its job may be done," but added that another rate rise in 2026 cannot be ruled out.
Further guidance on the RBA's outlook is due Thursday, Aug. 13, when Assistant Governor for Financial Markets Christopher Kent is scheduled to speak on interest rates, inflation, the Australian dollar and global markets.
