RBA tipped to hold cash rate at 4.35 per cent following Tuesday’s meeting

Mortgage payers have been warned against complacency, despite expected welcome news around Tuesday’s all important cash rate announcement.

Economists and experts have tipped the Reserve Bank will hold the cash rate on Tuesday, however borrowers have been advised to prepare for the potential of future hikes, with the board unlikely to rule out future hikes.

Forecasting from the Commonwealth Bank’s economist Head of Australian Economics Gareth Aird tipped the rate would be unchanged on Tuesday, with the statement on the decision likely to say the board “is not ruling anything in or out” when it comes to future movements.

If correct, the RBA board will leave rates at the existing 12-year high of 4.35 per cent, as it attempts to push inflation into its target range of 2 to 3 per cent – something it believes will be achieved by mid-2026.

“We expect the cash rate will be left on hold and see the chance of any other outcome as trivial,” he wrote.

“We expect the RBA governor (Michele Bullock) to stick to the same script that has been used at each press conference in 2024; namely that the board remains alert to potential upside inflation risks, whilst recognising that GDP growth is weak and the outlook is uncertain.”

RBA governor Michele Bullock is expected to hold rates on Tuesday. Picture: NewsWire / Nikki Short

On Wednesday, households and economists breathed a sigh of relief after the quarterly June Consumer Price Index increased from 3.6 per cent to 3.8 per cent.

The rise, while still above the RBA’s target range, was on track with the board’s forecasting.

However the all-important underlying inflation figure, or the trimmed mean which excludes larger price movements and forecasts on core inflation dropped from 4 per cent to 3.9 per cent.

Next Tuesday’s cash rate announcement will also coincide with the release of its quarterly August Statement of Monetary Policy, which will factor in the federal government’s $300 energy rebate.

CommBank’s Stephen Wu tipped the impact of the rebates could cause the RBA to “downwardly revise” headline inflation figures, however prediction on the trimmed mean CPI would likely remain the same.

“More specifically we expect the line to be retained from the June statement that, ‘the path of interest rates that will best ensure that inflation returns to target in a reasonable time frame remains uncertain and the board is not ruling anything in or out’,” he wrote.

“Whilst the board will have welcomed the latest inflation data, there is no need to deviate from the recent script. Indeed it is too early to shift tone.”

Despite this, the RBA is expected to not rule out further cash rate hikes, as it attempts to bring down inflation to a target of 2 to 3 per cent. Picture: Newswire

While some economist have predicted a rate cut could arrive “before Christmas,” financial comparison site RateCity urged borrowers to prepare themselves for the eventuality of a future hike, with inflation remaining sticky.

An uptick in the cash rate of 25 basis points would result in someone with a $500,000 mortgage, forking out an extra $75 in their monthly repayments, with their payments increasing by a total of $1285 from when the cash rate began ticking up in May 2022.

Calculations on a $750,000 mortgage means their repayments would increase by $112, or a total of $1928 since rates have increased.

“(Wednesday’s inflation update) still fits within the RBA’s timeline to return inflation back to target by mid-2026, buying it more time to continue with its current plan,” said RateCity.com.au’s research director Sally Tindall.

“However, the clock is ticking for the RBA. If Australia’s inflation rate doesn’t start coming back down soon, or worse still, continues in the wrong direction, the Board will have to act.”

However she said the likely hold, will allow borrowers to prepare for a potential hike.

“If you haven’t accounted for the extra dollars from your stage three tax cuts, put that money aside as safe keeping,” she added.

“If that money is already patching up a hole in your budget, now is the time to look at other ways to take the pressure off.”

Ahead of Tuesday’s announcement Treasurer Jim Chalmers has reframed from making any predictions.

While he said the inflation figures were “encouraging,” cost-of-living pressures remained high.

“We’ll know Tuesday afternoon where they (the RBA) landed and why. I’m respectful of them and I don’t make predictions about it or try and pre-empt or position them,” he told the Sunday Telegraph.

“There were some encouraging numbers out on Wednesday and we’ve made some big progress since the election, but I acknowledge inflation’s still a bit too sticky and a bit too stubborn, and that’s why we didn’t get too carried away when they came out.

However, Shadow Treasurer Angus Taylor blamed the government for fueling inflation through its “added $315bn of extra spending”.

“The RBA has one tool – monetary policy. The government must play its role, but Labor has failed to do so,” he said.

“Australia is at the back of the pack when it comes to tackling inflation – we are the only G10 country which has had inflation rise compared to December. This is an indictment on the Albanese Labor government.”

Originally published as RBA tipped to hold cash rate at 4.35 per cent following Tuesday’s meeting