The Reserve Bank of Australia (RBA) unanimously decided to keep its policy rate unchanged at 4.35% in August, but leading financial institutions remain divided on the central bank's next steps, particularly in light of escalating global energy risks [1]. MUFG points to severe external threats, notably the surge in Brent crude prices caused by US actions against Iran and the closure of the Strait of Hormuz, warning that these factors could trigger a global inflation shock. MUFG suggests that persistent energy costs may force the RBA to hike rates as early as September, and notes that markets are already pricing in a full rate hike by March of the following year [1].
In contrast, National Australia Bank (NAB) interprets the RBA's recent communication as signaling confidence that the domestic economy has cooled, referencing a smaller output gap and 'somewhat restrictive' financial conditions. NAB forecasts steady quarterly GDP growth between 0.3% and 0.4%, and expects the RBA to keep rates on hold through 2026, with the first rate cut anticipated around mid-2027 [1].
Westpac describes the RBA's decision as a 'hawkish hold,' noting that softer inflation and labor market data led the Board to moderate its tightening bias. While Westpac's base case is for an extended pause in rate changes into mid-next year, it cautions that energy-driven inflation could still prompt a rate hike later in the year if upside risks materialize [1].
Commonwealth Bank (CBA) also expects the RBA to maintain the current rate of 4.35% through 2026, with two cautious cuts projected for 2027. CBA highlights that while disinflation is ongoing, the RBA's warnings about potential hikes are intended to prevent premature market expectations of easing. The upcoming July CPI data is seen as a critical indicator, with a November rate hike remaining a key upside risk [1].
CONCLUSION
Major Australian banks are split on the RBA's next policy move, with some warning of imminent hikes due to energy price shocks and others forecasting a prolonged hold before eventual cuts in 2027. The market remains cautious, closely watching upcoming inflation data for further direction.