Key points
  • The Reserve Bank of Australia has held the cash rate at 4.35% for August
  • The decision was unanimous among the monetary policy board's nine members
  • RBA governor Michele Bullock said the board did not discuss a rate cut, only the possibility of a hold or a rise

The Reserve Bank of Australia's monetary policy board unanimously agreed to leave the cash rate at 4.35% in August.

However, RBA governor Michele Bullock revealed the board weighed the possibilities of a hold or a rise and did not discuss the possibility of a rate cut.

The hold had been widely expected by markets and commentators on the back of weaker-than-expected inflation data for the June quarter.

In handing down the decision on Tuesday, the RBA also released a new Statement on Monetary Policy (SoMP), adopting a slightly more optimistic view of the economy than the previous statement in May.

Inflation expected to peak lower

The RBA's preferred measure of inflation, the trimmed mean, is expected to moderate to 3.3% by the end of 2026, down from the previous forecast of 3.5%.

It's expected to hit the mid-range of the RBA's 2-3% target by early 2028, with headline inflation also expected to fall into the mid-range around the same time.

However, the RBA said it sees risks skewed heavily to the upside for inflation.

The Reserve Bank's outlook for GDP growth has also been lifted to 1.4% by December 2026, up from the 1.3% forecast in May.

Annualised growth is expected to rise to 1.6% by the end of 2027, up from the previous forecast of 1.4%.

At the same time, the unemployment rate is also expected to increase to 4.5% by the end of the year, up from the 4.3% previously forecast.

Improved forecasts, hawkish media conference

Despite the slightly improved outlook for the economy in the SoMP, Ms Bullock maintained a hawkish tone at her media conference.

She reiterated inflation was still too high and the board would raise the cash rate if it was required, something of a mantra in recent times.

Ms Bullock also expressed concern about the continued weakness in productivity growth in the Australian economy.

She acknowledged the current cash rate of 4.35% - on the back of three consecutive interest rate increases in 2026 - is "a bit restrictive" with the effects still playing out in the economy.

But this was offset by upside risks to inflation posed by both domestic and global factors.

Mixed reaction from banks and markets

After Ms Bullock's media conference, ANZ Bank reaffirmed its expectation the cash rate has peaked although acknowledged there was some risk of a final rate hike in November.

NAB maintained its forecast that the next move in the cash rate would be a cut in mid-2027.

Meanwhile, AMP chief economist Shane Oliver tweeted there will be another cash rate increase by the end of the year.

He based this on the RBA's noted risk of higher fuel prices being passed through to other goods and services, keeping inflation high for some time.

The RBA continues to be wary of the inflationary effects of the simmering Middle East conflict on the Australian economy. 

After Ms Bullock's media conference, Bloomberg reported markets are pricing in a 50% chance of a rate hike by November.