Key Points

• Following the RBA’s decision to keep rates on hold at 4.1% for a second consecutive month, we now see only one more increase this cycle, taking the cash rate target to a peak of 4.35% (previously 4.6%). In terms of timing, we see this as likely at the November meeting, following the release of the Q3 CPI.
• With recent data showing a clear trend of easing inflation and slower demand growth, the probability that 4.1% is the peak for the cycle is growing – particularly given the RBA’s stated intention to seek to maintain the pandemic-era gains in the labour market.
• However, a number of near-term upside pressures remain likely to challenge the RBA’s risk tolerance around inflation – particularly on the services side. On balance, we still see the RBA as likely to take out some additional insurance to ensure inflation remains on track to return to target by mid-2025. That RBA forecast remains a very important anchor for policy movements.
• We continue to forecast very slow economic growth in the second half of 2023 and into 2024, alongside a pickup in unemployment. With rates peaking slightly lower, we have pushed back our expectation for the beginning of rate cuts to August 2024, with the cash rate to return to around 3% in early 2025.

For further details, please see the NAB Monetary Policy Update (2 August 2023)