Macquarie is now predicting the Reserve Bank of Australia (RBA) board will hike interest rates at its meeting later this month, saying that stubbornly high inflation is likely to force its hand.
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Data will force the Reserve Bank to act
In a research note released this week, Macquarie noted that trimmed mean inflation had spent 17 of the last 20 quarters above the RBA's target band for inflation of 2% to 3%.
Macquarie said the RBA had "run a monetary experiment" over the past couple of years, "hiking less than other central banks during 2022 and 2023 in an attempt to hold onto part of the fall in unemployment that occurred during COVID''.
They went on to say:
In the first half of 2025, it looked like the experiment had worked, with underlying inflation returning to the middle of the target band, allowing the RBA to claim victory by easing policy by 75 basis points. However, over the second half of 2025 both growth and inflation rebounded, forcing a reversal of the earlier cuts as the RBA acted to slow growth. The 75 basis points of tightening earlier this year is working, with growth in recent quarters below trend. However, with unemployment still around three quarters of a percentage point below the pre-COVID level, the RBA now seems to feel that output remains above the economy's potential, suggesting that more needs to be done to bring inflation back to target.
Macquarie said wages growth in the second quarter was slightly below RBA expectations while July inflation was strong, however, volatility in these numbers made it difficult to "discern signal from noise".
RBA sending a clear message
But the broker said the RBA appeared to be sending clear signals about a rise in interest rates.
As they wrote:
Commentary … from RBA Assistant Governor Hunter has provided a clear steer on which side of the fence RBA staff have landed. Hunter highlighted concerns about oil prices and strength in the July CPI. While acknowledging the volatility in the monthly CPI series, she indicated RBA staff see enough signal in the data of stronger than expected inflation (pointing to strength in domestic factors such as market services and new dwelling price inflation).
Macquarie said the conclusion they drew from this was that a 25 basis point increase later this month was now the most likely outcome.
The cash rate was last increased, by 25 basis points, on May 6, following identical increases in February and March.
The official cash rate now sits at 4.35%.
