Rates on hold as expected. What comes next?
The Reserve Bank’s latest forecasts paint a surprisingly upbeat picture, though upside inflation risks remain.
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As was widely expected, the Reserve Bank of Australia (RBA) Monetary Policy Board left the cash rate unchanged at 4.35% on Tuesday.
On the surface, recent data appears to justify that decision. A softer-than-expected inflation print in June suggested price pressures may be easing across the economy, with the RBA’s preferred measure of underlying inflation – the trimmed mean – surprising to the downside. Combined with a gradual increase in unemployment over recent months, a broadening downturn in housing market conditions, and weak consumer and business sentiment, there are signs that the three interest rate increases already this year are working through the economy.
The forecasts in the accompanying Statement on Monetary Policy presented a more favourable inflation outlook than had been expected only a few months ago. The RBA is now expecting underlying inflation to return to the midpoint of its 2-3% target range by late 2027. The latest forecasts suggest the economy is on track to achieve a relatively smooth return to price stability, with inflation anticipated to moderate without a significant deterioration in economic growth or labour market conditions.
Despite the encouraging central forecast, the RBA continues to emphasise that inflation risks remain skewed to the upside. In the post-meeting press conference, Governor Michele Bullock highlighted several factors which could see inflation prove more persistent than expected: domestic capacity constraints, strong data centre-related investment, a tight labour market and the commodity price risks related to the conflict in the Middle East. Many of these risks sit outside the RBA’s direct control, making the inflation outlook particularly precarious in the near-term. The RBA is walking a narrow path.
As a result, the apparent optimism in the RBA’s forecasts should not be taken for confidence that inflation’s return to target is assured. Rather, the forecasts rely on global conditions remaining broadly stable and capacity constraints continuing to ease. While Tuesday’s decision to leave rates unchanged was straightforward, the outlook remains finely balanced.
Governor Bullock remarked that it is quite possible the RBA Board will need to raise rates again. Given the balance of risks remains firmly skewed to the upside, Deloitte Access Economics shares that assessment and continues to expect an additional interest rate hike this year, most likely in November.
This newsletter was distributed on 13th August 2026. For any questions/comments on this week's newsletter, please contact our authors:
This blog was co-authored by Adelle Thomas (Graduate, Deloitte Access Economics)
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