The consensus is that it would be a huge shock for the RBA to deviate from the current 4.35%.

CommBank, Westpac, NAB and ANZ economists have all called a hold, while the most recent ASX RBA Rate Tracker estimates a 95% chance rates are unchanged, based on the trading activity of those who speculate on the cash rate.

The data suggests high interest rates continue to slowly soften the economy, with unemployment (4% for May) and first quarter GDP growth (up 1.2% through the 12 months to March) broadly in line with the most recent RBA forecasts.

As RBA Governor Michelle Bullock made clear in May's monetary policy decision though, inflation is still declining more moderately than expected, and the RBA is likely to err on the side of caution as far as rate cuts are concerned.

"The Board expects that it will be some time yet before inflation is sustainably in the target range and will remain vigilant to upside risks," she said in her accompanying statement after the hold in May.

This will be the first decision since the Federal Budget for 24/25 was rolled out, and there was some alarm the extensive cost of living measures it contained could work against monetary policy.

However, Brian Martin, Head of Global Economics at ANZ, expects Ms Bullock to disagree.

"We think the post meeting statement will note that recent fiscal cost of living measures were not reflected in the RBA's inflation forecasts published in May, but that these measures should also not have a significant impact on core inflation," he said.

August decision 'live'

Every post meeting statement for the past couple of years has reiterated that bringing inflation to target is the number one priority of the RBA.

Accordingly, the board pays a lot of attention to the CPI inflation indicator, which tracks the price changes of household goods.

The most recent CPI was for April, suggesting prices rose 3.6% from April '23, up from 3.5% the previous month, but the more comprehensive quarterly inflation release is usually considered the one to look out for.

Senior CommBank economist Belinda Allen says the second-quarter CPI release, scheduled for 31 July, will be important.

"We consider the August meeting as potentially live," she said.

Interestingly, the ASX rate tracker puts the implied yield for August is slightly higher than June (4.32% compared to 4.315%), which suggests a couple of traders are predicting an upside surprise to inflation, and a corresponding interest rate hike.

No cuts til '25?

Last week, ANZ's economics team became the first of the majors to officially push back its forecast for rate cuts until next year.

"Several factors have come together to see [upside] risks become sufficiently material to prompt a formal change in our cash rate view," said Adam Boyton, Head of Australian Economics at ANZ.

"Accordingly, we now expect the first cash rate cut in February 2025."

For now, economists at CommBank, Westpac and NAB are still predicting cuts to begin by the end of this year, but the outlook remains uncertain.

Ms Allen said a delay in this forecast remains possible given the upside risks.

"Given the challenging underlying inflation backdrop and a shortening runway between now and November, the risk to our call is increasingly moving towards a later start date for an easing cycle," she said.

Picture by Darius Kerr on Pexels

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