Big chance of zero interest rate hikes this year

A LEADING bank has reiterated its view that interest rates will remain steady for the rest of the year.

Belinda Allen, CommBank head of Australian economics, said “we continue to expect the RBA to remain on hold in August and for the remainder of 2026″.

“Currently there is little need to tighten further given the combination of data prints since June and our forecasts for the rest of the year.”

With growth slowing as expected, inflation tracking below the RBA’s May expectations, the jobs market softening a little faster than expected and the housing market weakening more than anticipated, the RBA is firmly on the sidelines, said Allen.

The June quarter Consumer Price Index came in below expectations, including the measure of underlying inflation that the RBA watches closely. 

The unemployment rate is 4.4 per cent, which is above the RBA’s 4.2 per cent forecast for the June quarter, while a broader measure of spare capacity in the jobs market is at its highest level since December 2021.

Allen said the recent numbers allow the RBA “to be patient” as it assesses the effect of earlier rate rises.

That does not mean the RBA is ready to declare the inflation fight over, she added.  
 
“We expect the RBA to remain concerned about elevated inflation and reiterate they will be willing to hike again if required,” Allen said.

CommBank still sees a rate rise in November as a risk if prices start rising faster again and growth does not slow as expected.

Allen said the hurdle for another increase looks higher now because the past two inflation outcomes were both below expectations.

CommBank’s forecast has two rate cuts in 2027, in May and August. 

Slower growth, a softer jobs market and lower quarterly inflation readings would be needed before the RBA cuts the cash rate, Allen said.

The RBA may also be shy given the learnings from 2025 when inflation returned quickly after interest rate cuts.

Developments in household spending and the jobs market “will remain critical from here”, Allen said, adding that geopolitics is a key watch point.

“The Middle East conflict is another risk because it could encourage businesses to pass higher costs on to customers in the September quarter.”

CommBank expects the RBA to lower its inflation forecasts for the rest of 2026 and lift its unemployment forecast after the faster rise in the June quarter, when new forecasts are released in August.