The RBA's Monetary Policy Board unanimously voted to leave the cash rate unchanged at 4.35 per cent at its August meeting, extending the pause that began in June following three rate hikes earlier this year.
The decision was widely expected by economists and financial markets, with the RBA judging monetary policy remains restrictive and the economy is slowing broadly as anticipated. However, the Board made clear it remains concerned about upside risks to inflation and would be prepared to lift rates again if those risks materialise.
"Today's decision reinforces that the RBA remains focused on inflation risks despite signs the economy and labour market are slowing,” said Head of Australian Economics Belinda Allen.
"While inflation has surprised on the downside recently, inflation remains too high and the Board has made it clear it remains willing to raise rates again if price pressures prove more persistent than expected."
Inflation still the key concern
The RBA's updated Statement on Monetary Policy reflects a better-than-expected starting point for inflation after softer June quarter consumer price data. Underlying inflation is now forecast to fall to 3.3 per cent by the end of 2026, down from 3.5 per cent in the Bank's May forecasts.
Despite that improvement, the RBA expects inflation to remain above the midpoint of its 2-3 per cent target range until late 2027.
Governor Michele Bullock also confirmed a rate hike and a hold were both considered at the August meeting, highlighting the Board's focus on inflation risks. Only a on hold decision was discussed in June.
CommBank outlook unchanged
CommBank continues to expect the RBA to remain on hold through 2026, although another rate increase remains a risk if inflation or economic activity proves stronger than expected.
Upcoming inflation, labour market and household spending data will be closely watched for signs that demand is slowing enough to bring inflation sustainably back to target.
CommBank's base case remains unchanged, with two rate cuts forecast in 2027 as inflation moderates further and the labour market softens.
Read Belinda’s full research note here.
