TD Securities, represented by Prashant Newnaha, now anticipates that the Reserve Bank of Australia (RBA) will increase the cash rate by 25 basis points to 4.60% at its meeting at the end of September. This revised expectation follows the release of stronger-than-expected Q2 Gross Domestic Product (GDP) data and robust discretionary consumption figures. According to Newnaha, annual growth is currently running slightly above trend, which supports the case for a rate hike, although a further hike later in the year is considered possible but not the base case scenario [1].
The details from the Q2 GDP print have reinforced TD Securities' view that the RBA is likely to act, as the central bank has emphasized the need for growth to slow in order to control inflation. The implied quarter-on-quarter GDP growth required to meet the RBA's August 2026 Monetary Policy Statement forecasts is 0.3% for both Q3 and Q4. However, S&P's Australia Composite PMI survey for July and August indicates that growth is improving in Q3 and is likely to exceed the RBA's implied Q3 GDP forecast [1].
Household consumption was approximately in line with the RBA's 0.4% quarter-on-quarter projection, but discretionary spending has accelerated over recent quarters. While the monthly household spending data does not exactly match the national accounts measure, the July data showed that discretionary spending remains firm [1].
Market implications include a strengthened expectation for a rate hike in September, with the possibility of additional tightening later in the year if growth and consumption trends persist. However, TD Securities does not consider further hikes as its central scenario at this time [1].
CONCLUSION
Stronger-than-expected Q2 GDP and resilient discretionary spending have led TD Securities to forecast a 25bps rate hike by the RBA in September. Market expectations for further tightening have increased, though additional hikes are not the base case. The outlook will depend on whether growth and consumption continue to exceed the RBA's forecasts.