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Insights

Insights

The 11 August decision: what the RBA is weighing

The Reserve Bank held the cash rate at 4.35% at its June meeting, following three consecutive increases earlier in the year. The August meeting on 11 August is the next inflection point. The data that has arrived since June is genuinely mixed — enough to sustain a case for either action or restraint.

Where the numbers sit

The headline Consumer Price Index rose 3.8% in the twelve months to June, down from 4.0% in May. The June quarter reading of 3.9% was a step below the 4.1% recorded in the March quarter. Both remain above the Reserve Bank's 2%–3% target band.

The picture beneath the headline is more resistant. The trimmed mean CPI — the RBA's preferred measure of underlying inflation — held steady at 3.6% year-on-year in June, unchanged from May and equal to its March quarter reading. This is the highest reading since September 2024. Services inflation, which reflects domestic demand and wage pressures, accelerated to 4.0% in June from 3.7% in May. Housing costs remain the single largest contributor to annual inflation, rising 6.8% year-on-year.

The labour market held firm. The seasonally adjusted unemployment rate remained at 4.4% in June, with the participation rate lifting 0.3 percentage points to 67.0%. Employment grew by 76,000 people, though the composition was predominantly part-time. Underemployment ticked up to 6.5%.

RBA Assistant Governor Sarah Hunter described the June CPI print as "a touch softer than expected," while noting that housing and services pressures remain persistent.

The variables the Board will weigh

Five factors are worth working through, because they are the ones the Monetary Policy Board has consistently emphasised.

The first is the direction and durability of underlying inflation. Headline CPI can move on temporary factors — the halving of the fuel excise from 1 April is one such factor lowering the June print. The trimmed mean strips these out. Its persistence at 3.6% means underlying inflation has not resumed its earlier decline; whether that stall is temporary or entrenched is the central question.

The second is labour market slack. Unemployment at 4.4% is above its cyclical low but remains historically tight. Wage growth continues to run above levels the RBA judges consistent with 2%–3% inflation over the medium term. Capacity pressures in services industries — construction, healthcare, hospitality — have been repeatedly cited by the Board as a demand-side inflation source.

The third is energy prices. Brent crude sits in the low $70s per barrel after peaking above $140 during the Iran conflict earlier in the year. Prices have been volatile, trading above $95 at points in July. Energy is a persistent line in Australia's cost structure, feeding into transport, food, and electricity. The removal of government energy subsidies through 2026 has already contributed to higher electricity costs in official measures.

The fourth is the international backdrop. The European Central Bank raised its deposit rate on 11 June — its first hike since 2023. The Federal Reserve, on 29 July, held at 3.50%–3.75% but recorded three dissenting votes for a further increase. Coordinated tightening abroad tends to strengthen the Australian dollar and moderate imported inflation, though the size and timing of that effect is uncertain.

The fifth is the Board's own recent record. The three increases earlier in the year signalled a Board more concerned with inflation persistence than with growth risks. A further hike would deepen that posture. A hold would signal that the June pause was durable rather than tactical.

Where analysts stand

There is no consensus. Three of the four major domestic banks — Commonwealth Bank, National Australia Bank, and ANZ — expect the RBA to hold at 4.35% through the remainder of 2026. Westpac forecasts a further increase, with August viewed as the most likely timing. A recent Finder survey of 40 economists found 55% expect at least one further hike in 2026; among those, 62% consider the August meeting the most likely occasion.

The division is unusual. In most cycles, the four majors align closely on their forecasts. Their present disagreement reflects genuine uncertainty in the data rather than differences in analytical framework.

What each outcome would mean

For borrowers, another 25 basis point increase would lift standard variable rates to their highest sustained level in more than a decade. A hold would keep the current mortgage cost structure in place.

For savers, both outcomes preserve the highest cash rates in a generation — a shift that has changed the mathematics of holding cash as part of a portfolio, particularly for those approaching or in retirement.

For portfolios, the more consequential factor is not the marginal move but the sustained level. A cash rate held at 4.35% or above for an extended period changes the relative attractiveness of asset classes — bonds compete more effectively with equities, real assets face discount rate pressure, and the cost of leverage rises. None of this is captured by a single decision. All of it is captured by the environment.

The principle

The temptation before a Board meeting is to position for a specific outcome. The discipline is to hold a portfolio that does not depend on one.

Rate cycles turn on data that has not yet arrived. Analyst forecasts, however carefully constructed, are subject to the same information gap the Board itself faces. What a portfolio can be built to do is participate in productive enterprise, maintain genuine diversification across independent return drivers, and manage cost and tax with discipline. None of these requires a correct call on 11 August.

If you would like to review how your portfolio is positioned across the range of possible rate outcomes — rather than for a single expected one — we welcome the conversation.

Ben Widdup
Wealth Manager

1300 102 542 | 0402 633 205
ben.widdup@egu.au

Sources

This is general advice. It does not take account of your objectives, financial situation, or needs, and is not a substitute for advice that does. Before acting on anything in it, consider whether it suits your circumstances, and consider the relevant Product Disclosure Statement.

Ben Widdup