Australian homeowners could receive temporary relief from further interest rate increases in August, although another Reserve Bank rate hike later this year remains a possibility if inflation proves persistent, Bendigo Bank’s Chief Economist David Robertson says.
Robertson expects the Reserve Bank of Australia to leave the cash rate unchanged at its August meeting, citing recent economic data, while warning the central bank’s tightening bias is likely to remain throughout the new financial year.
“While the RBA held rates steady in June, it was clear they remain focussed on their dual mandate of price stability and full employment, issuing the blunt message they will do what it takes to achieve that outcome – including another hike to the cash rate,” Robertson said.
“It’s our prediction here at Bendigo Bank that Aussie homeowners will be able to catch their breath in August, with recent economic data pointing to a hold at the RBA’s next meeting.”
The outlook comes as inflation continues to ease gradually, although underlying price pressures remain above the Reserve Bank’s target.
“Given strong labour markets and national unemployment at 4.4%, the price stability part of the RBA’s mandate remains the challenge. Headline CPI fell to 4% in the May inflation data, but core inflation rose to 3.6% and appears likely to remain above target for at least another 12 months,” Robertson said.
“Given strong labour markets and national unemployment at 4.4%, the price stability part of the RBA’s mandate remains the challenge. Headline CPI fell to 4% in the May inflation data, but core inflation rose to 3.6% and appears likely to remain above target for at least another 12 months”
He said lower oil prices and the resumption of shipping through the Strait of Hormuz had reduced some inflationary pressure, though they had not eliminated the risk of further monetary tightening.
“This doesn’t necessarily mean the RBA needs to tighten rates further, as oil prices have moderated and more ships make their way through the Strait of Hormuz. Our view remains the tightening bias will continue throughout the new financial year, with the risk of one more hike around year-end, with recent talk of rate cuts next year appearing premature,” he said.
Robertson believes any move towards lower interest rates remains some way off.
“Rate cuts in 2027 would need several prerequisites: the underlying inflation rate would presumably need to be close to 2.5%, and the RBA would need to form the view that the economy needs support.”
He said the bank expects economic growth and household demand to soften during the second half of 2026, although estimates of the neutral cash rate have also increased.
“While we expect growth and household demand to slow in the second half of 2026, estimates of a ‘neutral cash rate’ continue to rise (to around 4%), meaning rates today are only mildly restrictive based on RBA estimates.”
Robertson said a sharper downturn remained a risk, though it was not Bendigo Bank’s central forecast.
“A scenario where rate cuts would be more urgently needed is a sharper slowdown bordering on recession. While this isn’t our central forecast, there are several sources of pessimism offshore and locally, including in residential property,” he said.
The comments follow recent signs that Australia’s housing market is losing momentum, particularly in Sydney and Melbourne.
“Auction clearance rates have fallen below 50% in capital cities. While outright falls in property prices remain confined to Sydney and Melbourne, there are concerns the slowdown may broaden,” Robertson said.
“Our forecasts see national dwelling prices much flatter over the next twelve months with risks to the downside as the impact of tax changes becomes evident, but supply is still struggling to keep up with demand.”
The Reserve Bank has also acknowledged the importance of housing to the wider economy. Minutes from its June meeting noted concern about “the risks associated with a potentially material weakening in housing markets, including if this were to inhibit growth in consumption”, highlighting the role property values play in household spending and economic activity.
Despite the softer housing outlook, Robertson said current economic conditions do not point towards a recession.
“How this all feeds into the broader economic slowdown remains to be seen. For the moment, household spending data is showing resilience, and with strong labour markets, the risk of recession appears low – especially assuming the oil price has peaked.”
Global sharemarkets have continued to outperform Australian equities, supported by expectations that geopolitical tensions will ease and investment in artificial intelligence will continue.
“Stock markets continue to take a positive view of the Middle East conflict eventually being resolved and are optimistic about AI investment. This saw the US S&P500 up 20% last financial year and the Nasdaq over 25%, while our ASX200 gained just 3%,” Robertson said.
He believes Australia’s recovery from the current slowdown will depend partly on global investment trends.
“Assuming the focus steadily moves from the oil crisis to the global tech investment boom, our economy’s recovery from the 2026 slowdown will presumably be linked to this mega-trend, although markets will be prone to corrections.”
Looking ahead to the Reserve Bank’s August meeting, Robertson expects policymakers to keep rates unchanged while continuing to monitor inflation, employment and consumer spending.
“In summary, the RBA cash rate may well plateau at or just above its current level for the rest of this year and for most of next, despite the economy decelerating. Without another global shock, the stronger conditions evident at the start of this year should reassert themselves into 2027. Jobs, inflation, and household spending data will be key to the RBA’s next policy decision in August, where we expect no change in the cash rate,” he said.
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