Westpac said it expects the Reserve Bank of Australia's Monetary Policy Board to leave the cash rate unchanged at 4.35 percent at its August meeting, citing a softer-than-expected second quarter inflation print as the key factor giving the Board room to hold. The cash rate has sat at 4.35 percent since November 2023, the peak of the RBA's tightening cycle that began in May 2022 from a pandemic-era low of 0.1 percent.

According to Westpac's economists, Q2 CPI came in below their forecasts on both a headline and trimmed mean basis — the latter serving as the RBA's preferred gauge of underlying inflation by excluding the most volatile price movements. Only the downside risks the bank had flagged in its preview ended up materialising, with no upside surprises.

Westpac described the result as welcome news, noting that the substantial pass-through of higher energy costs observed during the early phase of the Middle East conflict has not been followed by further pass-through in recent months. The bank's assessment aligns closely with that of the Commonwealth Bank of Australia, which released its own on-hold call earlier. CBA's reading of the June inflation data similarly found that higher input costs were not broadly flowing through to consumer prices.

CBA also expects the RBA to hold in August and for the remainder of 2026, citing slowing growth, softer-than-forecast inflation, faster labour market easing, and a weaker housing market.

Despite the case for holding, both banks expect the RBA Board to retain a hawkish posture as it works through the coming months of data. Westpac argued that if inflation continues behaving as expected, policymakers can gain confidence that price growth is returning to the RBA's 2–3 percent target band under existing settings without needing to move rates further. Both institutions anticipate the RBA will continue flagging its willingness to hike again if conditions warrant, even absent an immediate case to tighten.

With two major banks now aligned on a hold, market attention is expected to shift toward the RBA's updated economic forecasts and the tone of Governor Michele Bullock's commentary at the meeting. The more important signal for AUD will be whether the Board's language shifts materially dovish or remains cautious, since a hold alone — accompanied by hawkish rhetoric — should limit its impact on the currency.

The one area where the outlook could shift is energy. A renewed spike in Middle East-driven fuel costs would be the clearest way to revive the pass-through risk that both banks currently see as contained, and would complicate the case for staying on hold further into the year.

The RBA's rate decision is due Tuesday, 11 August 2026 at 2:30pm Sydney time (04:30 GMT, 12:30am US Eastern). Governor Michele Bullock's press conference will follow at 3:30pm Sydney time (05:30 GMT, 1:30am US Eastern).