RBA Holds Firm as Inflation Risks Remain

• The RBA left the cash rate unchanged at 4.35%, as widely expected, while retaining a hawkish bias. The Board reiterated that inflation remains too high and stands ready to tighten further should inflationary pressures re-emerge.
• The RBA acknowledged the economy is slowing as expected, but stopped short of signalling the tightening cycle is over. Financial conditions were described as “somewhat restrictive”, with markets still pricing around 15bps of further tightening by year-end.
• The Statement on Monetary Policy contained only modest forecast revisions, with slightly lower near-term inflation and a higher unemployment track. Underlying inflation is still not expected to return to target until late 2027.
• The NAB Business Survey showed confidence easing by 1 point in July, while conditions improved to +4. Labour cost growth and capacity utilisation remained elevated, suggesting domestic cost pressures persist.
• Ahead today, US CPI is expected to remain subdued, with core inflation forecast at 0.2% m/m and 2.5% y/y. Markets will also continue to monitor developments around the Strait of Hormuz as oil prices rose to US$83.20/bbl.