Overview
- The Reserve Bank left the cash rate at 4.35% on Tuesday and for the first time this year inserted unusually explicit language warning that it could raise rates again if conditions warrant.
- Governor Michele Bullock said inflation "remains too high" and said slower growth and a softer labour market will be needed to bring price rises down.
- Financial markets still assign only a modest probability to another hike and several big banks expect cuts in 2027, but Westpac retains a conditional call for an August rise if the June-quarter trimmed mean inflation is firm.
- Fresh signs of weakening demand include a sharp six-month fall in capacity utilisation in NAB’s business survey, cooling housing activity, and higher energy costs from a Middle East oil shock combined with recent tax changes that are lifting business and construction prices.
- The near-term script now hinges on the June-quarter trimmed mean inflation print plus monthly inflation and unemployment data, which will determine whether the RBA tightens again and how long mortgage pressure and slower growth may last.