The Reserve Bank of Australia is widely expected to leave the cash rate unchanged at 4.35% when it hands down its decision today, a call so broadly anticipated by markets and economists that the rate hold itself carries little potential to move markets. Attention instead is centred on the updated economic forecasts, the accompanying Statement on Monetary Policy, and Governor Bullock's press conference—each of which will offer far more insight into where rates head next.

The RBA has held the cash rate at 4.35% since November 2023, having raised it by 425 basis points from a pandemic-era low of 0.10%. Unlike the US Federal Reserve and the European Central Bank, which have already begun cutting rates, the RBA remains in a holding pattern, making it one of the last major developed-market central banks still signalling that further tightening cannot be ruled out.

Alongside the rate decision, the RBA will release fresh forecasts for growth, unemployment, and inflation in its quarterly Statement on Monetary Policy. Since the Bank's previous forecasts in May, economic conditions have shifted in multiple directions.

Oil prices and Middle East tensions have eased somewhat, providing a modest positive for the inflation outlook. Unemployment, however, has run higher than the RBA anticipated, printing at 4.4% in two of the three months of the June quarter against a prior forecast of 4.2%. Trimmed mean inflation for Q2 came in slightly softer than expected at 0.8% quarter-on-quarter—welcome news, though still a pace that would sit above the RBA's 2–3% target band if sustained. Housing turnover and prices have softened more than anticipated, partly reflecting tax changes introduced in the May budget, while construction has found unexpected strength driven by heavy AI data centre investment.

Three Key Focus Areas

1. Potential Board Dissent

The first area to watch is whether any of the seven non-RBA Board members dissent in favour of a further rate increase. Such a move would be read as hawkish and could quickly reprice market expectations for the timing of the next policy shift, particularly given that a meaningful minority of economists still expect further hikes rather than the cuts some major banks are pencilling in for mid-2027. A dissent would signal that at least some members view current policy as insufficiently restrictive, or see the timeline for returning inflation to target as having already stretched too long.

2. Forecast Revisions

The second focus is the scale of forecast revisions. An upward revision to the unemployment outlook is expected, offset by only modest improvement to the inflation forecast, since the recent 4.8% increase in the minimum award wage is anticipated to limit how much that projection can improve. The net tone of the Statement may therefore matter more than any single data point.

3. Governor's Communication Tone

The third focus is the tone of the Governor's decision statement and subsequent press conference. The Bank is expected to repeat its standing message that it remains prepared to raise rates further if needed to return inflation to target within a reasonable timeframe. A repeat of that warning would reinforce current market pricing, while any softening of the language would likely be interpreted as a dovish shift.

Economists Divided on the Path Forward

Economists at each of the four major banks now believe the cash rate has peaked, with modest cuts possible from around mid-2027. However, a separate, sizeable group of economists continues to argue that further tightening will be required. They point to persistently low unemployment, a 4.8% minimum wage increase, broader wage growth running at 3.5% to 3.75%, and sticky services inflation as reasons the current forecast path may prove too optimistic.

The case for holding rests on the Board having more time to assess the effects of its earlier tightening before needing to act again—a view aligned with both market pricing and the majority of economist forecasts. The case for a further hike centres on inflation still running 0.75 to 1 percentage point above target after an already extended period above goal.

A rate cut is not expected to feature meaningfully in today's discussion. Housing market softness is more likely to be viewed by the Board as assisting the return of inflation to target rather than as grounds for easing policy.

Earlier Coverage

• RBA preview: Analysts see cash rate on hold at 4.35% Tuesday
• RBA preview - Westpac says soft Q2 CPI gives RBA room to hold at 4.35%
• Preview: RBA meet Tuesday. CBA expects RBA to hold rates through the rest of 2026
• MUFG opens long AUDJPY at 111.20, targets 114.50 as yen intervention debate builds
• Preview: RBA to stay in pause and observe mode, TD Securities says ahead of today's decision