RBA Weighs 4.35% Cash Rate Hold as 42 of 45 Economists Back Pause

Q: Why does a top economist predict more rate hikes for Australians even as the economy slows?

Westpac chief economist Luci Ellis expects more rate hikes because she thinks inflation, not growth, will dominate the Reserve Bank’s thinking. Her view is that even though consumer spending, housing and business confidence are weakening, inflation is still too far above the RBA’s 2–3 per cent target band. Headline inflation eased to 4.2 per cent in April, but the RBA’s preferred underlying measure, trimmed mean inflation, edged up to 3.4 per cent. Ellis argues that this shows price pressures are proving sticky rather than fading fast enough. She is also focused on fresh inflation risks. Higher fuel costs, the restoration of the full fuel excise, and ongoing disruption around the Strait of Hormuz could keep petrol and transport costs elevated. Economists warn these costs can spread through the economy as businesses pass on higher freight, energy and input bills, creating broader “second-round” inflation. Ellis also believes the RBA will tolerate weak consumer and housing conditions if that is what is needed to finish the job on inflation. In her view, softer demand is not a reason to cut rates soon; it is part of how tighter monetary policy works. That is why she forecasts two more increases in August and September 2026 before cuts in 2027. Most other major-bank economists disagree and expect a long pause followed by cuts next year, but Ellis’s case is that the RBA may judge inflation persistence and energy-driven price risks as more dangerous than a slowing economy.

3 articles · Updated · The Canberra Times · Jun 14

Two days of Reserve Bank board talks begin Monday, with Governor Michelle Bullock due to announce Tuesday whether the cash rate stays at 4.35%.
Forty-two of 45 economists surveyed by Reuters expect no change despite Middle East-driven economic pressure and inflation still above the RBA’s target band.
A hold would mark the first meeting in 2026 without a rate increase after three consecutive hikes in the first half, though NAB still says the next move is more likely down than up.
$195 million in zero-interest government loans has already gone to fuel and freight businesses under a $1 billion support program, underscoring how the US-Israeli war with Iran is feeding into Australia’s policy backdrop.