TD Securities’ Macro Research team, led by Prashant Newnaha and Howard Du, anticipates that the Reserve Bank of Australia (RBA) will increase the target cash rate by 25 basis points to 4.60% at its September Board meeting [1]. The decision is attributed to several factors, including an upside surprise in the July Consumer Price Index (CPI) release on 26 August, firmer Q2 GDP data released on 2 September, rising oil prices, and increased demand related to artificial intelligence [1].
Despite the clear case for a September rate hike, TD Securities does not expect the RBA to implement further hikes in November or December, citing that the impact of the previous three hikes is still filtering through the economy and that pre-emptive tightening serves as inflation risk management [1]. The RBA could justify the September hike as a sufficient response to the anticipated upside in Q3 2026 CPI outcomes [1]. Additionally, ongoing talks between the US and Iran to resolve their conflict are expected to alleviate pressure on oil prices, potentially reducing inflationary risks [1].
The RBA Governor noted that forward-looking employment indicators are 'all looking stable-ish,' suggesting no immediate labor market concerns [1]. TD Securities also highlighted that if the Board is not unanimous in its decision to hike, markets may interpret this as a higher threshold for any subsequent rate increases [1].
Looking further ahead, TD Securities forecasts the cash rate will remain on hold at 4.60% throughout 2027, though they acknowledge the possibility of a rate hike at the February 2027 meeting if warranted by future developments. However, this is not their central forecast, and they are monitoring several factors that could prompt a change in their outlook [1].
CONCLUSION
TD Securities expects the RBA to raise the cash rate to 4.60% in September, driven by recent inflation and GDP data. However, no further hikes are anticipated in the near term, with the cash rate likely to remain steady through 2027 unless new economic developments arise.