RBA poised to hold as inflation stays elevated

Major Australian banks and interest‑rate markets expected the Reserve Bank of Australia to leave its cash rate unchanged at 4.35% at the August policy meeting. Interbank futures implied only a low single‑digit probability, around 4%, that the Board would raise rates at this meeting, with some estimates putting the chance of a hold near 96%. This positioning indicated that a steady policy rate was largely priced in by traders and forecasters ahead of the announcement.

The Board met across Monday and Tuesday on its usual timetable, with the decision scheduled for 2:30pm AEST on Tuesday and a press conference by Governor Michele Bullock to follow. The meeting coincided with the release of the quarterly Statement on Monetary Policy, giving markets a detailed update on the central bank’s assessment of growth, inflation, and risks.

The policy deliberations took place against the backdrop of the June‑quarter consumer price index, which showed some easing in price pressures but not a full return to target. Headline inflation slowed to about 3.8% year on year, while the trimmed‑mean measure, the RBA’s preferred gauge of underlying price trends, remained around 3.6%. Both readings stayed above the 2–3% target band that guides the Bank’s medium‑term objectives.

These figures reinforced the view that while inflation had moderated from earlier peaks, it remained uncomfortably high for policymakers. Pre‑meeting analysis emphasized that this combination of softer headline inflation and still‑elevated underlying measures would be central to the Board’s discussion about how restrictive policy needed to remain.

With an unchanged cash rate widely anticipated, attention turned to the language of the policy statement and the associated forecasts. Observers highlighted the importance of the so‑called bias sentence that describes the Board’s assessment of whether the next move in rates is more likely to be up or down. Retaining a tightening bias would signal that further rate increases remain a live option if upside inflation risks re‑emerge.

Pre‑meeting commentary noted that Governor Michele Bullock and the Board remained concerned that inflation was still too high. As a result, even a decision to hold the cash rate at 4.35% would not necessarily indicate that the tightening cycle was definitively over. Instead, investors and borrowers were focused on how the RBA framed these risks and on the projections contained in the Statement on Monetary Policy for guidance on the likely duration of restrictive settings.

Because markets largely assumed a steady rate decision, the main potential source of volatility lay in any change to the RBA’s guidance. A more hawkish tone or firmer tightening bias could prompt traders to price a higher probability of future hikes, affecting bond yields and borrowing costs. Conversely, any softening in the bias language might lead markets to reassess the likelihood that the current 4.35% cash rate represents the peak.

For households and businesses, the expected hold provided near‑term stability in benchmark borrowing costs, but the emphasis on persistent inflation underscored that relief from higher interest rates was not yet assured. The August meeting and accompanying statement therefore served as a key reference point for expectations about the timing and pace of any eventual easing in policy, contingent on how inflation evolves relative to the 2–3% target band.