For the second consecutive month the RBA has left interest rates on hold at 4.10% at its August monetary policy meeting. 

Despite numerous economists still predicting one last 25 basis push by the RBA, a growing number no longer expect another rate rise.

There is increasing evidence the central bank’s efforts to stop soaring inflation seems to have succeeded, even Governor Philip Lowe said so himself. 

“Interest rates have been increasing by four percentage points since May last year,” Dr Lowe said in his post-meeting statement.

“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so.”

CommBank Senior Economist Belinda Allen said upside surprises to future economic data would be required for the RBA to lift the cash rate again.

“Higher interest rates are working, inflation is coming down, and the activity side of the economy is slowing,” Ms Allen said.

“Our base case now is for the RBA to be on hold at 4.10% for an extended period.

“Our rate cut profile would see the cash rate sit at 3.10% at the end of 2024, which we consider a more neutral setting.”

Yes, inflation (currently at an annualised 6%) remains well above the sweet target range of 2-3% and must be brought back down. But, multiple economic data points suggest households may receive the breathing room they’ve been desperately waiting for over the last 15 months.

Here are 7 reasons why the RBA may be done with further cash rate hikes.

1. Inflation growth is moderating

Inflation cooled by more than the RBA and major economists expected in the second quarter, falling from an annual rate of 7.8% in December to 6% by June 2023.

These figures provide the RBA reassurance the rate rises are achieving the intended effect.

In Dr Lowe’s post-meeting statement, he acknowledges “recent data is consistent with inflation returning to the 2-3% target range over the forecast horizon.”

2. Retail trade and consumption is slowing

Australian retail turnover slumped in June, falling 0.8% month-on-month according to the latest retail figures from the ABS.

Higher interest rates are impacting household spending patterns and will continue to do so, especially given that almost 87,000 fixed-rate home loans are set to expire between July and December this year.

3. Consumer sentiment is ‘deeply pessimistic’

According to the Westpac-Melbourne Institute Consumer Sentiment Index, consumer sentiment is at ‘deeply pessimistic’ levels, driven by the surging cost of living and sharply higher interest rates. 

The index is near early-1990s recession lows.

When consumers are optimistic, they will spend more and stimulate the economy, but if they are pessimistic then they’re likely to spend less.

4. Banks are hiking rates on their own terms

Forget the RBA - banks and lenders have been raising both variable and fixed rates over the last few weeks, which has the same impact on borrowers as official increases. Higher interest rate leads to higher repayments, and thus less money to spend.

5. Household savings continue to deplete

The ABS household savings ratio declined to 3.7% in the March quarter, marking a 15-year low, suggesting Aussies are now eating into their savings to afford higher interest rates.

To put the rate of decline into perspective, the savings ratio sat at 13.5% in December 2021.

APRA data released last week revealed household bank deposits dropped to $7.7 billion in June, the first decline in two years.

Research from RFI Global indicates the average Aussie has chewed through $2,000 of their savings over the past seven months. 

6. Unemployment is expected to pick up

Although unemployment remains low at 3.5%, it is expected to rise as higher interest rates dent demand and lessen the need for workers - which is exactly what the RBA wants.

The RBA’s Statement on Monetary Policy (SoMP) predicts the unemployment rate to gradually increase and reach 4½ per cent by mid-2025.

7. A soft landing is the goal

The Board is determined to steer the economy into a ‘soft landing’ as we’ve heard on continuous repeat in Dr Lowe’s post meeting monetary statements.

A ‘soft landing’ requires the RBA to return inflation back to the target band of 2-3% without hiking rates too dramatically, which could result in high unemployment and an economic recession.

It seems as though the RBA's inflation taming could end with a fairytale ‘soft landing.’


It’s a fine line trying to determine whether or not the RBA has another 25 basis point trick up its sleeve.

Big increases in services inflation such as electricity prices, health insurance, and rents - and the minimum wage - could add further pressures to inflation this year, prompting the RBA to consider further rate rises.

Speaking to the Savings Tip Jar Podcast, Centre for Independent Studies Chief Economist and former central banker Peter Tulip, said the RBA should have hiked the cash rate in August.

“And the reason for that is I think the labor and housing markets are seriously overheated,” Mr Tulip said.

“Previously when we've had an unemployment rate of 3.5%, like in 2008 or the 1970s, that's been accompanied by rapidly accelerating prices and wages. 

“And were that to happen again, the RBA would need to jam on the brakes, and put us into a serious recession.”


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