All eyes will be on the Reserve Bank of Australia next Tuesday, when the central bank is set to announce its next interest rate decision.
As you're likely aware, the RBA decided to keep the official cash rate on hold at the current 4.35% when the bank last met on 16 June. And in case you're wondering, you'd have to go back to November 2011 to find the official cash rate at higher levels.
Prior to the June meeting, we saw three consecutive interest rate hikes from the RBA in 2026, with rates having kicked off the new year at a more modest 3.60%.
While June's hold decision was widely expected, the S&P/ASX 200 Index (ASX: XJO) still rallied on the news.
As for next Tuesday's meeting, the market is pricing in a 0% chance of rate change, according to the RBA Rate Indicator.
But are investors being too complacent?
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Is the RBA done with interest rate hikes?
Filip Tortevski, senior analyst at Wealth Within, cautioned that investors waiting for an interest rate cut should pay more attention to underlying inflation, which strips out certain volatile items like automotive fuel.
"While the headline inflation rate fell from 4.0% to 3.8%, much of the improvement came from one factor: petrol prices, which dropped 10.9% during June," he said. "That's good news for households, but fuel prices are heavily influenced by global oil markets and can reverse quickly."
According to Torevski:
The message is simple: headline inflation is improving, but underlying domestic inflation remains persistent.
For interest rates, this report reduces pressure for further rate increases, but on its own it is unlikely to give the Reserve Bank confidence that inflation has been sustainably brought under control.
CreditorWatch chief economist Ivan Colhoun expects we'll see the RBA keep interest rates at the current 4.35% next week. But he believes the bank isn't done with rate hikes quite yet.
Colhoun noted:
The slightly better than expected trimmed mean inflation readings … likely allow the board some further time to observe the impact of previous tightening before deciding whether further policy firming will be required. I still suspect that some modest further tightening will occur later in the year.
And Carl Ang, fixed income research analyst at MFS Investment Management, believes there's a materially higher than 0% chance we'll see the RBA increase interest rates on Tuesday.
Ang said:
Our central expectation is for a hawkish hold at next week's RBA meeting, but the pricing of rate hike risks appears to be on the low side. Whilst not our base case, it is reasonable to factor in a one-in-five chance of a tightening.
We'll leave off with Westpac Banking Corp (ASX: WBC) chief economist Luci Ellis, who is backing off from her prediction earlier this year for another RBA rate hike in 2026, and now expects the bank to stay on hold (quoted by the Australian Financial Review).
"Inflation has been more benign than we feared and the RBA forecast. This is welcome; we took no pleasure in our prior hawkish view," she said.
