What to Know About Next Week's RBA Decision Amid Easing Inflation

Australia's consumer price index (CPI) rose to 3.8% in the June quarter, matching economists' forecasts and up from 3.6% in the March quarter. Despite this increase, core inflation eased slightly to 3.9% year-on-year, giving hope that the Reserve Bank of Australia (RBA) will hold off on further rate hikes. Housing, food, and clothing costs saw notable rises. The RBA is expected to maintain its current interest rate, awaiting further moderation in inflation. Treasurer Jim Chalmers emphasized the need for inflation to decrease more rapidly.

Despite easing inflation, 32 out of 33 economists predict no rate changes. Market pricing shows a 55% chance of a rate cut by the end of 2024. Recent inflation data has been volatile but remains above the RBA's 2-3% target, keeping policymakers cautious.

• "The data reiterates our view that the interest rates are restrictive enough in Australia, and the next move by the RBA could very likely be a cut in November 2024," said Krishna Bhimavarapu, APAC economist at State Street Global Advisors.

• David Bassanese, chief economist with Betashares, agreed, saying: "Those with a mortgage can breathe a sigh of relief, at least for now, though Australia retains a sticky inflation problem and interest rate increases at some stage this year can still not yet be confidently ruled out."

• Rabobank analysts no longer expect the Reserve Bank of Australia (RBA) to hike interest rates in 2024, citing easing inflation in the second quarter. The RBA is anticipated to maintain the current rate of 4.35% in its upcoming meeting. The second-quarter trimmed mean CPI data aligned with RBA forecasts, and declines in non-tradables and services inflation suggest rates will remain steady. Although some inflation persists from imports and consumer spending, it isn't enough to prompt further rate hikes. However, the RBA is also unlikely to cut rates soon, as inflation is still above the 2-3% target. Rabobank predicts rate cuts will begin in the second quarter of 2025.

Although head of Australian economics at CommBank Gareth Aird anticipates the RBA will lower its inflation forecasts, he does not expect RBA Governor Michele Bullock to adopt the dovish rhetoric of Powell. Instead, he believes Ms. Bullock will maintain her consistent stance, indicating that the board is "not ruling anything in or out" and is staying vigilant to potential inflationary pressures.