Hawkish RBA Hold Expected in August After Benign Break on Inflation

Westpac says the Reserve Bank of Australia is now less likely to raise rates in August after Q2 inflation came in below both Westpac’s and the RBA’s expectations. The bank no longer expects any RBA rate hikes this year, though it still sees the central bank keeping a hawkish tone and not ruling out further tightening. The key downside surprise came from weaker-than-expected market services inflation and housing-related components, while labor market data also softened somewhat versus RBA forecasts. Westpac says a November hike remains a risk if inflation reaccelerates, but it is not their base case. The report suggests the latest inflation data materially reduces the odds of near-term policy tightening and increases scrutiny of the RBA’s view on supply capacity and trend growth.