The Reserve Bank of Australia (RBA) is widely anticipated to keep its Official Cash Rate (OCR) unchanged at 4.35% for the second consecutive meeting, with the decision scheduled for Tuesday at 04:30 GMT, followed by the Monetary Policy Statement and updated economic forecasts. RBA Governor Michele Bullock will hold a press conference at 05:30 GMT, with markets expected to react to any signals regarding the central bank’s future policy direction rather than the rate hold itself [1].
This expectation of a pause comes after Australia's latest Consumer Price Index (CPI) report revealed that underlying inflation slowed more than anticipated. The RBA’s preferred Trimmed Mean CPI rose 0.8% quarter-on-quarter in Q2, below the market forecast of 0.9%. On an annual basis, Trimmed Mean inflation edged up to 3.6% from 3.5%, remaining under the RBA’s own 3.8% forecast [1]. As a result, market-implied probability of an August rate hike plummeted to 4% from over 20% before the CPI data, and expectations for a fourth hike later in the year dropped below 50%, compared to roughly 84% prior to the data release [1].
Despite headline inflation being tempered by lower fuel prices in June, risks remain. Oil prices rose again in July following renewed conflict involving Iran, and the expiration of Australia’s temporary fuel excise discount on August 2 could add upward pressure to inflation in the coming months [1].
Given these developments, the RBA is expected to maintain a cautious, data-dependent stance, weighing slowing economic momentum against persistent price pressures. The central bank will likely consider updated inflation and growth forecasts, as well as external factors such as the potential reopening of the Strait of Hormuz, in determining whether to signal a continued pause in its tightening cycle [1].
CONCLUSION
The RBA is set to keep rates steady at 4.35%, with recent softer inflation data significantly reducing market expectations for further hikes in the near term. However, ongoing risks from rising oil prices and the end of the fuel excise discount mean the central bank is likely to maintain a cautious, data-driven approach. Market participants will closely watch the RBA’s statements for any hints on future policy direction.