Interest rates to plateau near current level, Bendigo Bank predicts
Bendigo Bank has forecast the Reserve Bank of Australia (RBA) will leave the cash rate unchanged at its August meeting, even as it warns of a possible further increase before the end of the calendar year.
“While the RBA held rates steady in June, it was clear they remain focussed on their dual mandate of price stability and full employment, issuing the blunt message they will do what it takes to achieve that outcome – including another hike to the cash rate,” said David Robertson (pictured top), chief economist at Bendigo Bank.
“It’s our prediction here at Bendigo Bank that Aussie homeowners will be able to catch their breath in August, with recent economic data pointing to a hold at the RBA’s next meeting.”
Robertson said the labour market remained a complicating factor for the RBA’s inflation goals.
“Given strong labour markets and national unemployment at 4.4%, the price stability part of the RBA’s mandate remains the challenge. Headline CPI fell to 4% in the May inflation data, but core inflation rose to 3.6% and appears likely to remain above target for at least another 12 months.
“This doesn’t necessarily mean the RBA needs to tighten rates further, as oil prices have moderated and more ships make their way through the Strait of Hormuz. Our view remains the tightening bias will continue throughout the new financial year, with the risk of one more hike around year-end, with recent talk of rate cuts next year appearing premature.”
According to Robertson, any move to cut rates in 2027 would depend on inflation falling closer to target. “Rate cuts in 2027 would need several prerequisites: the underlying inflation rate would presumably need to be close to 2.5%, and the RBA would need to form the view that the economy needs support,” he said.
He also noted that estimates of the so-called neutral cash rate had continued to climb, suggesting current settings were only mildly restrictive.
“While we expect growth and household demand to slow in the second half of 2026, estimates of a ‘neutral cash rate’ continue to rise (to around 4%), meaning rates today are only mildly restrictive based on RBA estimates.”
The economist argued that a sharper downturn, rather than a gradual slowdown, would be the more likely trigger for earlier rate relief. “A scenario where rate cuts would be more urgently needed is a sharper slowdown bordering on recession,” he said. “While this isn’t our central forecast, there are several sources of pessimism offshore and locally, including in residential property.”
Robertson concluded that the cash rate was likely to hold near its present level well into next year. “In summary, the RBA cash rate may well plateau at or just above its current level for the rest of this year and for most of next, despite the economy decelerating,” he said.
“Without another global shock, the stronger conditions evident at the start of this year should reassert themselves into 2027. Jobs, inflation, and household spending data will be key to the RBA’s next policy decision in August, where we expect no change in the cash rate.”
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