Mortgage holders are set to breathe easier this week, with economists broadly tipping the Reserve Bank of Australia (RBA) to keep the cash rate on hold at 4.35 per cent when Governor Michele Bullock and the central bank's board convene on Monday and Tuesday. The widely anticipated pause follows a surprise decline in inflation, even as price pressures remain stubbornly above the RBA's target range.
Why the RBA Is Expected to Hold the Cash Rate
The case for holding rates steady has been strengthened by the latest inflation data, which showed headline inflation dropping from 4 per cent to 3.8 per cent in June — its lowest reading since the beginning of the Iran war. While that figure remains well above the RBA's target band of two to three per cent, it represents meaningful progress in the fight against inflation.
The RBA's preferred measure, trimmed mean inflation, held steady at 3.6 per cent, suggesting underlying price pressures have not worsened. For more background on recent inflation trends, see our analysis of the current state of inflation in Australia.
A senior economist at NAB said the data flow since May had not given the board sufficient reason to tighten policy further. "The RBA would need a push to deliver further tightening and the net of data flow since May has not given them that push," he said, adding that unemployment had come in slightly above the bank's forecast while underlying inflation was "marginally lower than feared."
Economists Warn Inflation Risks Remain
Despite the broadly positive inflation picture, analysts are cautioning that upside risks have not disappeared. The NAB economist flagged concerns about rising fuel prices — the result of the federal government removing its fuel excise discount, combined with oil price volatility driven by renewed tensions in the Middle East. The bank's view is that the RBA's next move will ultimately be a rate cut, but that inflation risks remain elevated in the near term.
HSBC's chief economist echoed the wait-and-see sentiment, saying the central bank would likely pause while continuing to signal concern about inflation remaining above target. He noted that trimmed mean inflation had now sat above the midpoint of the RBA's target band for more than four years, suggesting the board would have little tolerance for any upside surprises or a slower-than-projected return to target.
"We see the downswing in growth being sufficient that the RBA begins to cut its cash rate in H2 2027," he said, while also warning that if inflation fails to fall quickly enough, a rate rise later in 2026 could not be entirely ruled out.
Our earlier reporting on Australia's inflation falling to a pre-war low provides further context on the conditions shaping this week's decision.
What Else Is on the Radar This Week
Beyond the rate decision itself, the week brings several other developments worth watching. NAB's monthly business confidence survey is due for release on Tuesday, which will offer a fresh read on how Australian companies are faring under current economic conditions.
Governor Bullock will also face a parliamentary inquiry on Friday, where the board's recent decisions and broader monetary policy approach are expected to come under scrutiny from lawmakers.
Internationally, global financial conditions are also shifting. Wall Street has been advancing after the US economy unexpectedly shed jobs, dampening expectations that the Federal Reserve will lift interest rates further. That global backdrop could factor into how the RBA frames its own outlook as it communicates its decision to the public this week.
With the board meeting wrapping up on Tuesday, all eyes will be on Governor Bullock's post-meeting statement for any signals about the path ahead for Australian borrowers.
