RBA’s Bullock Holds Line on Hikes as Markets Bet on Cuts

Michele Bullock kept the option of further rate increases on the table Tuesday, even after the Reserve Bank left the cash rate unchanged at 4.35%.

"Today's decision does not rule out further tightening in monetary policy if that is what is required to bring inflation down," the governor said in her post-meeting statement. The board, she added, "will do what it considers necessary to achieve that outcome, including increasing the cash rate, if required."

The pushback comes as markets have all but priced out any chance of another hike. Bullock acknowledged the doubters: "There have been a lot of doubters," she told reporters. "We expect it will take a further unexpected weakening in the domestic economy – and a better inflation outlook – to entirely prevent further hikes from here."

Bullock pointed to the RBA's estimate that the economy can only sustainably grow at roughly 2% a year. "Much stronger growth than that is going to cause inflation," she said. Until the inflation outlook improves and domestic demand weakens, the board cannot rule out tightening.

Australia's biggest banks are divided on the rate path. Commonwealth Bank expects cuts next year. ANZ and NAB each forecast two or three reductions in 2027. Westpac is the only one of the four still tipping a further hike before the easing cycle begins. Most analysts, according to the report, see the call on further hikes this decade as roughly 50-50.

Between now and the August 11 decision, the board will focus on employment and inflation figures. A stronger-than-expected CPI print or a tight labour market would make a hike more likely. A sharp slowdown in retail sales would reinforce the pause. Bullock said the board is data dependent and will adjust as the outlook changes.

The next cash rate call is Tuesday, August 11.