Interest rates are back in the spotlight, with the Reserve Bank of Australia's (RBA) next monetary policy meeting just weeks away.
On Tuesday, RBA Governor Michele Bullock said the central bank is taking a wait-and-see approach as it assesses how the economy is responding to the past three rate hikes. But she made clear that the RBA remains willing to lift rates again if necessary to bring inflation under control while supporting full employment.
"The full effects of this year's cash rate are yet to be felt," Bullock said, while speaking at the Anika Foundation fundraising lunch in Sydney.
"The board is prepared to act as required to achieve its mandate, including by increasing the cash rate further if needed," she continued. "There is a lot of commentary like 'oh no growth is slowing.' But we [have] assessed at the moment that demand has to slow. So it is not growing more than supply and generating inflation. So the point I want people to take away is this is part of the plan.
"This is what interest rates are designed to do," Bullock added. "[Rate hikes] are designed to slow demand so it is more in line with growth in supply and alleviate those inflation pressures."
Meanwhile, the latest consumer price index (CPI) showed inflation remains elevated but came in below expectations, bolstering the case for a near-term pause. The RBA has already lifted rates three times in 2026, taking the official cash rate (OCR) to 4.35%. At its June meeting, the central bank held rates steady, saying it needed more time to assess how previous rate increases were flowing through the economy.
Ahead of the RBA's August meeting, market players remain mixed on the direction of monetary policy.
"The RBA is waiting to see what the data tells them," Hobart-based economist Saul Eslake told Australian Broker. "And the data has told them this time that maybe inflationary pressures are a bit less than they had expected. But that could change. I mean, for example, if [US President] Donald Trump succeeds in restarting the war in the Middle East again, and oil prices go back over $100 [a barrel], as they looked as though they were going to do at the end of last week."
The economist added that the RBA "will be determined not to make the mistake they made last year, which was declaring 'mission accomplished' too soon. They cut rates three times last year, thinking that inflation was going to be sustainably back in the target band and it turned out not to be. Now they can't afford to make that mistake again; it'd be too damaging to their credibility. Now, I think the RBA is going to want to see a couple of quarters with underlying inflation back within the band before they cut rates again."
Bryan Ong, director and mortgage broker at Adelaide-based Rise High Financial Solutions, said the biggest clue about the RBA's next move can be found in what lenders are doing.
"Over the past couple of weeks, three or four lenders have reduced their fixed rates," Ong said. "That's generally a good indication of where the RBA's cash rate might be.
"No one has a crystal ball," he added. "But I don't think the RBA would be keen to increase interest rates over the next few meetings. I think it's more so a pause and potentially maybe a drop towards the end of the year."
Bianca Patterson, a Perth-based broker at Calculated Lending, also said she was optimistic that the RBA would keep rates on hold at its upcoming meeting.
"We need a period of stability, rather than moving too quickly in either direction," she said. "While borrowers would welcome some interest rate relief, there has not yet been enough time to see the full effect of the three consecutive rate rises, followed by the decision to hold in June. Holding rates again would give the economy more time to absorb those increases and give the RBA a clearer view of their impact before making its next decision. With the effects still flowing through to borrowers and the broader economy, cutting rates only two meetings after three consecutive rises would feel premature, particularly if any significant movement in the data could be temporary, or reflect an initial reaction to the announcement of the proposed federal budget measures."
But not everyone is as convinced.
"I think rates will go up," said Maryanne Elliott, a broker at Brisbane-based 360 Mortgage Solutions. "If not in August, then at the next meeting in September. Even though the market is softening, I still think that there's an inflation target that the RBA will want to get to.
"And everyone is still spending money," she continued. "So even though we're going through a cost of living crisis and people are struggling, there's still a lot of cash going around. There's a few people that haven't got the memo."
The RBA meets next on 10 and 11 of August.
