Experts split on whether next RBA move is a hike or cut amid energy risks

The Reserve Bank of Australia (RBA) maintained interest rates at 4.35% in August, yet economists disagree on the bank's future policy direction amid escalating energy risks. MUFG warns that soaring Brent crude prices, sparked by US actions against Iran and the closure of the Strait of Hormuz, could spark a global inflation shock.

This could prompt a rate hike as early as September if energy costs stay high. Meanwhile, National Australia Bank (NAB) interprets the RBA's recent remarks about a smaller output gap and slightly restrictive financial conditions as a sign that the domestic economy has cooled down enough to stay on hold through 2026. A first rate cut might follow in mid-2027.

Westpac considers the bank's stance as a "hawkish hold," with lower-than-expected inflation and labor market data allowing for a more relaxed tightening policy. This could extend the pause until mid-next year, although Westpac warns that future hikes could be necessary if energy-related pass-throughs prove significant. Commonwealth Bank (CBA) agrees that the RBA will keep rates steady through 2026, targeting a cautious rate cut around 2027.

The bank stresses that persistent disinflation will drive the decision, but warns that any potential hikes could come sooner if energy prices keep rising. The July CPI data is expected to test the RBA's resolve, with another hike in November remaining a key upside risk.